Advertisement

Journal of Business Ethics

, Volume 151, Issue 4, pp 1027–1047 | Cite as

Do ESG Controversies Matter for Firm Value? Evidence from International Data

  • Amal Aouadi
  • Sylvain Marsat
Article

Abstract

The aim of this paper is to investigate the relationship between environmental, social, and governance (ESG) controversies and firm market value. We use a unique dataset of more than 4000 firms from 58 countries during 2002–2011. Primary analysis surprisingly shows that ESG controversies are associated with greater firm value. However, when interacted with the corporate social performance (CSP) score, ESG controversies are found to have no direct effect on firm value while the interaction appears to be highly and significantly positive. Building on this evidence, we attempt to explore the channels through which CSP may enhance market value. Conducting sample split analysis indicates that higher CSP score has an impact on market value only for high-attention firms, those firms which are larger, perform better, located in countries with greater press freedom, more searched on the Internet, more followed by analysts, and have an improved corporate social reputation. Thus, our findings provide new insights on the role of firm visibility through which firms can profit from their CSP.

Keywords

ESG controversies Corporate social performance Firm value Firm visibility Investors’ attention 

Notes

Acknowledgments

We acknowledge the support of the “CSR & Value” Chair from the University of Auvergne Foundation and are grateful to Asset4-Thomson Reuters for providing ESG Data. We thank the participants of the CRCGM workshop and CIGE 2014 international conferences for their suggestions and comments. The ideas, methodology, and findings expressed in this paper are the sole responsibility of the authors.

References

  1. Adams, C. A. (2002). Internal organisational factors influencing corporate social and ethical reporting: Beyond current theorising. Accounting, Auditing & Accountability Journal, 15(2), 223–250.Google Scholar
  2. Al-Tuwaijri, S. A., Christensen, T. E., & Hughes, K. (2004). The relations among environmental disclosure, environmental performance, and economic performance: A simultaneous equations approach. Accounting, Organizations and Society, 29(5), 447–471.Google Scholar
  3. Arora, P., & Dharwadkar, R. (2011). Corporate governance and corporate social responsibility (CSR): The moderating roles of attainment discrepancy and organization slack. Corporate Governance, 19(2), 136–152. doi: 10.1111/j.1467-8683.2010.00843.x.Google Scholar
  4. Arouri, M., & Pijourlet, G. (2015). CSR performance and the value of cash holdings: International evidence. Journal of Business Ethics. doi: 10.1007/s10551-015-2658-5.Google Scholar
  5. Barber, B. M., & Odean, T. (2008). All that glitters: The effect of attention and news on the buying behavior of individual and institutional investors. Review of Financial Studies, 21(2), 785–818.Google Scholar
  6. Barnea, A., & Rubin, A. (2010). Corporate social responsibility as a conflict between shareholders. Journal of Business Ethics, 97(1), 71–86.Google Scholar
  7. Barnett, M. L. (2007). Stakeholder influence capacity and the variability of financial returns to corporate social responsibility. Academy of Management Review, 32(3), 794–816.Google Scholar
  8. Barnett, M. L. (2014). Why stakeholders ignore firm misconduct a cognitive view. Journal of Management, 40(3), 676–702.Google Scholar
  9. Barnett, M. L., & Salomon, R. M. (2012). Does it pay to be really good? Addressing the shape of the relationship between social and financial performance. Strategic Management Journal, 33(11), 1304–1320.Google Scholar
  10. Barth, M. E., & McNichols, M. F. (1994). Estimation and market valuation of environmental liabilities relating to superfund sites. Journal of Accounting Research, 32, 177–209.Google Scholar
  11. Baum, C. F. (2006). An introduction to modern econometrics using Stata. College Station, TX: Stata Press.Google Scholar
  12. Bebchuk, L. A., & Weisbach, M. S. (2010). The state of corporate governance research. Review of Financial Studies, 23(3), 939–961.Google Scholar
  13. Blankespoor, E., Miller, G. S., & White, H. D. (2013). The role of dissemination in market liquidity: Evidence from firms’ use of Twitter™. The Accounting Review, 89(1), 79–112.Google Scholar
  14. Boyd, J. H., Liu, Q., & Jagannathan, R. (2006). The stock market’s reaction to unemployment news, stock-bond return correlations, and the state of the economy. Journal of Investment Management, 4(4), 73–90.Google Scholar
  15. Brainard, W. C., & Tobin, J. (1968). Pitfalls in financial model building. The American Economic Review, 58(2), 99–122.Google Scholar
  16. Brammer, S., & Pavelin, S. (2006). Voluntary environmental disclosures by large UK companies. Journal of Business Finance & Accounting, 33(7–8), 1168–1188.Google Scholar
  17. Brown, L. D., & Caylor, M. L. (2006). Corporate governance and firm valuation. Journal of Accounting and Public Policy, 25(4), 409–434.Google Scholar
  18. Bushee, B. J., Core, J. E., Guay, W., & Hamm, S. J. (2010). The role of the business press as an information intermediary. Journal of Accounting Research, 48(1), 1–19.Google Scholar
  19. Cai, Y., Jo, H., & Pan, C. (2012). Doing well while doing bad? CSR in controversial industry sectors. Journal of Business Ethics, 108(4), 467–480. doi: 10.1007/s10551-011-1103-7.Google Scholar
  20. Campbell, J. L. (2007). Why would corporations behave in socially responsible ways? An institutional theory of corporate social responsibility. Academy of management Review, 32(3), 946–967.Google Scholar
  21. Capelle-Blancard, G., & Laguna, M.-A. (2010). How does the stock market respond to chemical disasters? Journal of Environmental Economics and Management, 59(2), 192–205.Google Scholar
  22. Carroll, A. B. (1979). A three-dimensional conceptual model of corporate performance. Academy of Management Review, 4(4), 497–505.Google Scholar
  23. Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), 1–23.Google Scholar
  24. Cho, S. Y., Lee, C., & Pfeiffer, R. J. (2013). Corporate social responsibility performance and information asymmetry. Journal of Accounting and Public Policy, 32(1), 71–83.Google Scholar
  25. Chollet, P., & Sandwidi, B. W. (2013). L’impact sur les marchés financiers européens de la diffusion d’alertes sociétales et de leurs évènements déclencheurs. Working paper.Google Scholar
  26. Chung, K. H., & Pruitt, S. W. (1994). A simple approximation of Tobin’s Q. Financial Management, 23, 70–74.Google Scholar
  27. Clarkson, P. M., Li, Y., & Richardson, G. D. (2004). The market valuation of environmental capital expenditures by pulp and paper companies. The Accounting Review, 79(2), 329–353.Google Scholar
  28. Cremers, K., & Nair, V. B. (2005). Governance mechanisms and equity prices. The Journal of Finance, 60(6), 2859–2894.Google Scholar
  29. Da, Z., Engelberg, J., & Gao, P. (2011). In search of attention. The Journal of Finance, 66(5), 1461–1499.Google Scholar
  30. Derwall, J. (2007). The economic virtues of SRI and CSR. Erasmus Research Institute of Management (ERIM).Google Scholar
  31. Di Giuli, A., & Kostovetsky, L. (2014). Are red or blue companies more likely to go green? Politics and corporate social responsibility. Journal of Financial Economics, 111(1), 158–180.Google Scholar
  32. Doh, J. P., Howton, S. D., Howton, S. W., & Siegel, D. S. (2010). Does the market respond to an endorsement of social responsibility? The role of institutions, information, and legitimacy. Journal of Management, 36(6), 1461–1485.Google Scholar
  33. Donaldson, T., & Preston, L. E. (1995). The stakeholder theory of the corporation: Concepts, evidence, and implications. The Academy of Management Review, 20(1), 65–91. doi: 10.2307/258887.Google Scholar
  34. Drake, M. S., Roulstone, D. T., & Thornock, J. R. (2012). Investor information demand: Evidence from Google searches around earnings announcements. Journal of Accounting Research, 50(4), 1001–1040.Google Scholar
  35. Du, S., Bhattacharya, C., & Sen, S. (2010). Maximizing business returns to corporate social responsibility (CSR): The role of CSR communication. International Journal of Management Reviews, 12(1), 8–19.Google Scholar
  36. Du, S., Bhattacharya, C., & Sen, S. (2011). Corporate social responsibility and competitive advantage: Overcoming the trust barrier. Management Science, 57(9), 1528–1545.Google Scholar
  37. Dyck, A., Moss, D., & Zingales, L. (2008). Media versus special interests. National Bureau of Economic Research.Google Scholar
  38. Dyck, A., & Zingales, L. (2003). The media and asset prices. Working Paper, Harvard Business School.Google Scholar
  39. Edmans, A. (2011). Does the stock market fully value intangibles? Employee satisfaction and equity prices. Journal of Financial Economics, 101(3), 621–640.Google Scholar
  40. El Ghoul, S., Guedhami, O., & Kim, Y. (2016). Country-level institutions, firm value, and the role of corporate social responsibility initiatives. Journal of International Business Studies, 00, 1–26.Google Scholar
  41. El Ghoul, S., Guedhami, O., Kwok, C. C., & Mishra, D. R. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking & Finance, 35(9), 2388–2406.Google Scholar
  42. Faccio, M. (2006). Politically connected firms. American Economic Review, 96(1), 369–386. doi: 10.1257/000282806776157704.Google Scholar
  43. Fiss, P. C., & Zajac, E. J. (2006). The symbolic management of strategic change: Sensegiving via framing and decoupling. Academy of Management Journal, 49(6), 1173–1193.Google Scholar
  44. Flammer, C. (2013). Corporate social responsibility and shareholder reaction: The environmental awareness of investors. Academy of Management Journal, 56(3), 758–781. doi: 10.5465/amj.2011.0744.Google Scholar
  45. Fombrun, C. (1996). Reputation: Realizing value from the corporate image. Boston: Harvard Business Press.Google Scholar
  46. Fombrun, C., Gardberg, N. A., & Barnett, M. L. (2000). Opportunity platforms and safety nets: Corporate citizenship and reputational risk. Business and Society Review, 105(1), 85–106.Google Scholar
  47. Fombrun, C., & Shanley, M. (1990). What’s in a name? Reputation building and corporate strategy. Academy of Management Journal, 33(2), 233–258.Google Scholar
  48. Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitman.Google Scholar
  49. Friedman, M. (2002). The social responsibility of business is to increase its profits. Applied Ethics, 5, 57.Google Scholar
  50. Frooman, J. (1997). Socially irresponsible and illegal behavior and shareholder wealth a meta-analysis of event studies. Business and Society, 36(3), 221–249.Google Scholar
  51. Galema, R., Plantinga, A., & Scholtens, B. (2008). The stocks at stake: Return and risk in socially responsible investment. Journal of Banking & Finance, 32(12), 2646–2654.Google Scholar
  52. Garcia-Castro, R., Ariño, M. A., & Canela, M. A. (2010). Does social performance really lead to financial performance? Accounting for endogeneity. Journal of Business Ethics, 92(1), 107–126.Google Scholar
  53. Gode, D., & Mohanram, P. (2003). Inferring the cost of capital using the Ohlson–Juettner model. Review of Accounting Studies, 8(4), 399–431.Google Scholar
  54. Godfrey, P. C., Merrill, C. B., & Hansen, J. M. (2009). The relationship between corporate social responsibility and shareholder value: An empirical test of the risk management hypothesis. Strategic Management Journal, 30(4), 425–445.Google Scholar
  55. Gormley, T. A., & Matsa, D. A. (2014). Common errors: How to (and not to) control for unobserved heterogeneity. Review of Financial Studies, 27(2), 617–661.Google Scholar
  56. Gray, R., Kouhy, R., & Lavers, S. (1995). Corporate social and environmental reporting: A review of the literature and a longitudinal study of UK disclosure. Accounting, Auditing & Accountability Journal, 8(2), 47–77.Google Scholar
  57. Greening, D. W., & Gray, B. (1994). Testing a model of organizational response to social and political issues. Academy of Management Journal, 37(3), 467–498.Google Scholar
  58. Groening, C., & Kanuri, V. K. (2013). Investor reaction to positive and negative corporate social events. Journal of Business Research, 66(10), 1852–1860. doi: 10.1016/j.jbusres.2013.02.006.Google Scholar
  59. Grullon, G., Kanatas, G., & Weston, J. P. (2004). Advertising, breadth of ownership, and liquidity. Review of Financial Studies, 17(2), 439–461.Google Scholar
  60. Guenster, N., Bauer, R., Derwall, J., & Koedijk, K. (2011). The economic value of corporate eco-efficiency. European Financial Management, 17(4), 679–704.Google Scholar
  61. Guidry, R. P., & Patten, D. M. (2012). Voluntary disclosure theory and financial control variables: An assessment of recent environmental disclosure research. Accounting Forum, 36(2), 81–90.Google Scholar
  62. Hoffman, A. J. (2001). From heresy to dogma: An institutional history of corporate environmentalism. Stanford, CA: Stanford University Press.Google Scholar
  63. Irvine, P. J. (2003). The incremental impact of analyst initiation of coverage. Journal of Corporate Finance, 9(4), 431–451.Google Scholar
  64. Jiao, Y. (2010). Stakeholder welfare and firm value. Journal of Banking & Finance, 34(10), 2549–2561.Google Scholar
  65. Johnson, H. H. (2003). Does it pay to be good? Social responsibility and financial performance. Business Horizons, 46(6), 34–40.Google Scholar
  66. Kacperczyk, A. (2009). With greater power comes greater responsibility? Takeover protection and corporate attention to stakeholders. Strategic Management Journal, 30(3), 261–285.Google Scholar
  67. Kang, J., & Kim, Y. H. (2013). The impact of media on corporate social responsibility. Available at SSRN 2287002.Google Scholar
  68. Kiesler, S., & Sproull, L. (1982). Managerial response to changing environments: Perspectives on problem sensing from social cognition. Administrative Science Quarterly, 27, 548–570.Google Scholar
  69. Kim, Y., Li, H., & Li, S. (2014). Corporate social responsibility and stock price crash risk. Journal of Banking & Finance, 43, 1–13.Google Scholar
  70. Klassen, R. D., & McLaughlin, C. P. (1996). The impact of environmental management on firm performance. Management Science, 42(8), 1199–1214.Google Scholar
  71. Klein, J., & Dawar, N. (2004). Corporate social responsibility and consumers’ attributions and brand evaluations in a product—Harm crisis. International Journal of Research in Marketing, 21(3), 203–217.Google Scholar
  72. Kothari, S. P., Shu, S., & Wysocki, P. D. (2009). Do managers withhold bad news? Journal of Accounting Research, 47(1), 241–276.Google Scholar
  73. Krüger, P. (2014). Corporate goodness and shareholder wealth. Journal of Financial Economics, 115(2), 304–329.Google Scholar
  74. Kuhnen, C. M., & Niessen, A. (2012). Public opinion and executive compensation. Management Science, 58(7), 1249–1272.Google Scholar
  75. Lang, L. H., & Stulz, R. M. (1993). Tobin’s Q, corporate diversification and firm performance. National Bureau of Economic Research.Google Scholar
  76. Liu, B., & McConnell, J. J. (2013). The role of the media in corporate governance: Do the media influence managers’ capital allocation decisions? Journal of Financial Economics, 110(1), 1–17.Google Scholar
  77. López, M. V., Garcia, A., & Rodriguez, L. (2007). Sustainable development and corporate performance: A study based on the Dow Jones sustainability index. Journal of Business Ethics, 75(3), 285–300.Google Scholar
  78. Lou, D. (2014). Attracting investor attention through advertising. Review of Financial Studies, 27(6), 1797–1829.Google Scholar
  79. Luo, X., Wang, H., Raithel, S., & Zheng, Q. (2015). Corporate social performance, analyst stock recommendations, and firm future returns. Strategic Management Journal, 36(1), 123–136.Google Scholar
  80. Luo, X., Zhang, J., & Duan, W. (2013). Social media and firm equity value. Information Systems Research, 24(1), 146–163.Google Scholar
  81. Mackey, A., Mackey, T. B., & Barney, J. B. (2007). Corporate social responsibility and firm performance: Investor preferences and corporate strategies. Academy of Management Review, 32(3), 817–835.Google Scholar
  82. Maignan, I., & Ferrell, O. (2004). Corporate social responsibility and marketing: An integrative framework. Journal of the Academy of Marketing Science, 32(1), 3–19.Google Scholar
  83. Maignan, I., & Ralston, D. A. (2002). Corporate social responsibility in Europe and the US: Insights from businesses’ self-presentations. Journal of International Business Studies, 33(3), 497–514.Google Scholar
  84. Marsat, S., & Williams, B. (2013). CSR and market valuation: International evidenc. Bankers, Markets & Investors, 123, 29–42.Google Scholar
  85. Martin Curran, M., & Moran, D. (2007). Impact of the FTSE4Good Index on firm price: An event study. Journal of Environmental Management, 82(4), 529–537.Google Scholar
  86. Martínez-Sola, C., García-Teruel, P. J., & Martínez-Solano, P. (2013). Corporate cash holding and firm value. Applied Economics, 45(2), 161–170.Google Scholar
  87. McConnell, J. J., Servaes, H., & Lins, K. V. (2008). Changes in insider ownership and changes in the market value of the firm. Journal of Corporate Finance, 14(2), 92–106.Google Scholar
  88. McWilliam, A., & Siegel, D. (2000). Corporate social responsibility and financial performance: Correlation or misspecification?. Strategic Management Journal, 21(5), 603–609.Google Scholar
  89. McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26(1), 117–127.Google Scholar
  90. Meznar, M. B., & Nigh, D. (1995). Buffer or bridge? Environmental and organizational determinants of public affairs activities in American firms. Academy of Management Journal, 38(4), 975–996.Google Scholar
  91. Mondria, J., & Wu, T. Asymmetric attention and stock returns. In AFA 2012 Chicago Meetings Paper, 2011.Google Scholar
  92. Moneva, J. M., & Cuellar, B. (2009). The value relevance of financial and non-financial environmental reporting. Environmental & Resource Economics, 44(3), 441–456.Google Scholar
  93. Montgomery, C. A., & Wernerfelt, B. (1988). Diversification, Ricardian rents, and Tobin’s Q. The Rand Journal of Economics, 19, 623–632.Google Scholar
  94. Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147–175.Google Scholar
  95. Nelson, P. (1974). Advertising as information. The Journal of Political Economy, 82(4), 729–754.Google Scholar
  96. Oikonomou, I., Brooks, C., & Pavelin, S. (2012). The impact of corporate social performance on financial risk and utility: A longitudinal analysis. Financial Management, 41(2), 483–515.Google Scholar
  97. Orlitzky, M. (2013). Corporate social responsibility, noise, and stock market volatility. The Academy of Management Perspectives, 27(3), 238–254. doi: 10.5465/amp.2012.0097.Google Scholar
  98. Palazzo, G., & Scherer, A. G. (2006). Corporate legitimacy as deliberation: A communicative framework. Journal of Business Ethics, 66(1), 71–88.Google Scholar
  99. Petersen, M. A. (2009). Estimating standard errors in finance panel data sets: Comparing approaches. The Review of Financial Studies, 22(1), 435–480.Google Scholar
  100. Pfau, M., Haigh, M. M., Sims, J., & Wigley, S. (2008). The influence of corporate social responsibility campaigns on public opinion. Corporate Reputation Review, 11(2), 145–154.Google Scholar
  101. Rodriguez, P., Siegel, D. S., Hillman, A., & Eden, L. (2006). Three lenses on the multinational enterprise: Politics, corruption, and corporate social responsibility. Journal of International Business Studies, 37(6), 733–746.Google Scholar
  102. Roman, R. M., Hayibor, S., & Agle, B. R. (1999). The relationship between social and financial performance repainting a portrait. Business and Society, 38(1), 109–125.Google Scholar
  103. Rountree, B., Weston, J. P., & Allayannis, G. (2008). Do investors value smooth performance? Journal of Financial Economics, 90(3), 237–251.Google Scholar
  104. Salancik, G. R., & Pfeffer, J. (1978). A social information processing approach to job attitudes and task design. Administrative Science Quarterly, 23, 224–253.Google Scholar
  105. Servaes, H., & Tamayo, A. (2013). The impact of corporate social responsibility on firm value: The role of customer awareness. Management Science, 59(5), 1045–1061.Google Scholar
  106. Smith, C. W., & Watts, R. L. (1992). The investment opportunity set and corporate financing, dividend, and compensation policies. Journal of Financial Economics, 32(3), 263–292.Google Scholar
  107. Starbuck, W. H., & Milliken, F. J. (1988). Executives’ perceptual filters: What they notice and how they make sense. The Executive Effect, 35, 65.Google Scholar
  108. Suchman, M. C. (1995). Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, 20(3), 571–610.Google Scholar
  109. Surroca, J., Tribó, J. A., & Waddock, S. (2010). Corporate responsibility and financial performance: The role of intangible resources. Strategic Management Journal, 31(5), 463–490.Google Scholar
  110. Tobin, J. (1969). A general equilibrium approach to monetary theory. Journal of Money, Credit and Banking, 1(1), 15–29.Google Scholar
  111. Vanhamme, J., & Grobben, B. (2009). “Too Good to be True!”. The effectiveness of CSR history in countering negative publicity. Journal of Business Ethics, 85(2), 273–283.Google Scholar
  112. Wang, M., Qiu, C., & Kong, D. (2011). Corporate social responsibility, investor behaviors, and stock market returns: Evidence from a natural experiment in China. Journal of Business Ethics, 101(1), 127–141.Google Scholar
  113. Wang, T., & Bansal, P. (2012). Social responsibility in new ventures: Profiting from a long-term orientation. Strategic Management Journal, 33(10), 1135–1153.Google Scholar
  114. Weick, K. E., Sutcliffe, K. M., & Obstfeld, D. (2005). Organizing and the process of sensemaking. Organization Science, 16(4), 409–421.Google Scholar
  115. Weigelt, K., & Camerer, C. (1988). Reputation and corporate strategy: A review of recent theory and applications. Strategic Management Journal, 9(5), 443–454.Google Scholar
  116. Wooldridge, J. M. (2003). Cluster-sample methods in applied econometrics. American Economic Review, 93(2), 133–138.Google Scholar
  117. Yoon, Y., Gürhan-Canli, Z., & Schwarz, N. (2006). The effect of corporate social responsibility (CSR) activities on companies with bad reputations. Journal of Consumer Psychology, 16(4), 377–390.Google Scholar
  118. Zhou, X. (2001). Understanding the determinants of managerial ownership and the link between ownership and performance: Comment. Journal of Financial Economics, 62(3), 559–571.Google Scholar
  119. Zyglidopoulos, S. C., Georgiadis, A. P., Carroll, C. E., & Siegel, D. S. (2012). Does media attention drive corporate social responsibility? Journal of Business Research, 65(11), 1622–1627.Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2016

Authors and Affiliations

  1. 1.Université Clermont Auvergne, Université d’Auvergne, EUMClermont-Ferrand Cedex 1France

Personalised recommendations