Does ESG Performance Enhance Firm Value? Evidence from Korea

We analyze whether a firm’s corporate social responsibility (CSR) plays a significant role in promoting its market value in an emerging market, namely Korea. We employ environmental, social, and corporate governance (ESG) scores to evaluate CSR performances and examine their effect on firm valuation...

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Bibliographic Details
Published inSustainability Vol. 10; no. 10; p. 3635
Main Authors Yoon, Bohyun, Lee, Jeong, Byun, Ryan
Format Journal Article
LanguageEnglish
Published Basel MDPI AG 11.10.2018
Subjects
Bias
Community relations
Corporate governance
Developed countries
Developing countries
Emerging markets
Emissions
Environmental protection
Human rights
Investments
LDCs
Market value
Securities markets
Social responsibility
Stock exchanges
Sustainability
Valuation
China
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Summary:We analyze whether a firm’s corporate social responsibility (CSR) plays a significant role in promoting its market value in an emerging market, namely Korea. We employ environmental, social, and corporate governance (ESG) scores to evaluate CSR performances and examine their effect on firm valuation. We find that CSR practices positively and significantly affect a firm’s market, in line with previous studies on developed countries. However, its impact on share prices can differ according to firm characteristics. For firms in environmentally sensitive industries, the value-creating effect of CSR is lesser than for firms that do not belong to sensitive industries. Specifically, corporate governance practice negatively influences the firm value of environmentally sensitive firms. Further, governance practice significantly promotes market value only for chaebols, while investors do not significantly value governance practice carried out by other firms. This finding suggests the value-enhancing effects of governance structure reformation in the former. This work mainly contributes to the literature by verifying a positive CSR-valuation relationship in emerging markets, which provides substantial policy and welfare implications in markets where governments play a major role in promoting CSR. A stronger valuation effect of CSR in chaebols may present economic background for the intervention of the Korean government in the reformation of chaebol.
ISSN:2071-1050
2071-1050
DOI:10.3390/su10103635