The Influence of Environmental, Social, and Governance (ESG) Practices on US Firms’ Performance: Evidence from the Coronavirus Crisis

Abstract

This study explores the influence of total and individual ESG practices and the coronavirus crisis on US firm performance (FP). A large and recent sample of 406 US firms that adopted ESG issues during 2016–2020 was used. This study uses the generalized least-squares (GLS) regression estimator, the dynamic analysis technique, and robustness tests. The results indicate that firms with heightened ESG practices have better performance measures. In most cases, the results suggest that firms with heightened environmental, social, and governance performances have better performance measures. The results suggest that the coronavirus crisis negatively affected FP measures. In addition, the analyses of the differences suggest significant distinctions in FP due to the coronavirus crisis. This study’s findings have important implications for stakeholders. Managers could benefit from the results of this examination by recognizing the status of ESG practices and FP before and during the coronavirus crisis and identifying the linkage between the fulfillment of ESG responsibilities and FP. This study provides noteworthy practical implications that could enable managers to develop strategies and policies for adopting and enhancing ESG practices to achieve the best performance. Furthermore, the results could influence trading processes as investors and financiers pursue attractive financial returns from investments in businesses concerned with ESG issues.

Do business strategies and environmental, social, and governance (ESG) performance mitigate the likelihood of financial distress? A multiple mediation model

“…In the same context, this study argues that a firm's evolution cannot occur without sound business strategies or efficient ESG practices. As one of the most noteworthy theories in business, the resource-based theory was conceived to clarify the sources of sustainable competitive advantage in firms [ 16 , 38 , 65 , 66 ]. According to the resource-based view, firms' internal capabilities and resources are the most suitable sources for enhancing performance and achieving competitive advantage [ 67 ].…”

“…In addition, several theories have been proposed to explain this issue, including stakeholder, institutional legitimacy, signaling, and agency theories. The stakeholder theory assumes that satisfying stakeholders' needs are crucial challenge concerning information asymmetries and conflicts of interest between stakeholders [ 38 , 51 ]. It states that a firm's sustainability practices can help enhance its connections with stakeholders and its ability to attract investors [ 49 , 50 , 68 , 69 ].…”

“…Business strategies share some similarities with firms' ESG practices in that the purpose of adopting them is to achieve continuous improvement in the firm's business, whether in an internal or external context, to enhance performance, attract investors, and gain a competitive advantage. ESG is a business strategy that enhances environmental, social, and governance practices [ 37 , 38 ]. Firms that integrate sustainable practices into their operations experience better performance and market value [ [37] , [38] , [39] , [40] , [41] , [42] , [43] ].…”

“…ESG is a business strategy that enhances environmental, social, and governance practices [ 37 , 38 ]. Firms that integrate sustainable practices into their operations experience better performance and market value [ [37] , [38] , [39] , [40] , [41] , [42] , [43] ]. Ref.…”

“…The current study has distinctive attributes and motives in the context of U.S. companies. First, ESG practices are essential for improving the performance of U.S. firms [ 37 , 38 ]. Second, a McKinsey report indicated that ESG investments increased as inflow investments into firms' sustainable funds rose from $5 billion to $50 billion, especially from 2018 to 2020 [ 55 ].…”