Do ESG Factors Influence Investment Attractiveness of the Public Companies?

Journal of Corporate Finance Research. 2022. Vol. 16. No. 1. P. 38–64.

Nazarova V., Victoria Lavrova

Even though there are numerous papers on the impact of ESG disclosure or performance on company performance, the topic remains disputable and controversial. The growing importance of ESG scores in investment decision-making has raised a question of whether the ESG score and its pillars influence the investment attractiveness of public companies. Us- ing a sample of S&P 500 American and S&P 350 European companies in the period between 2010 and 2020, we examine the relationship between ESG performance and investment attractiveness, expressed by Tobin’s Q, ROE, cost of capital and probability of paying dividends. We use the difference in means, panel regression and propensity score matching analysis and conclude that higher ESG performance positively influences Tobin’s Q for both markets, while also providing evidence that ESG score transition to the above-median level may lead to a fairer valuation, higher probability of paying dividends and lower cost of capital, while return on equity is not subject to change. While previous research mainly focuses on one indicator, such as company value or cost of debt, this paper develops a set of investment attractiveness indicators and covers not only composite ESG performance, but also its environmental, social and governance pillars separately; it also emphasizes the influence on the industrial sector. Overall, our results suggest that managers pay close attention to ESG performance if it falls below median, although good ESG performance does not guarantee investment attractiveness.

Keywords: инвестиционная привлекательность, дивиденды, dividends, Tobin's Q, ROE, средневзвешенная стоимость капитала, коэффициент Q-Тобина, ESG критерии, investment attractiveness, ESG rating

Publication based on the results of: Business Ethics Management Tools: Measurement of Ethics and Social Responsibility of the Company, Ethics Training in the Company and Self-Regulation of Ethics in the Market (2022)