Exploring the Impact of ESG Factors on Company Value: A Comprehensive Literature Review
Author(s)
Download Full PDF Pages: 47-57 | Views: 211 | Downloads: 71 | DOI: 10.5281/zenodo.8108582
Abstract
The growing popularity of non-financial reporting has led to an increasing number of companies disclosing information on ESG factors. Non-financial reporting involves presenting environmental, social, and corporate governance issues that are impacted by or impact the company's operations. Initially seen as a corporate social responsibility, there has been a shift in understanding as academic studies have revealed potential advantages associated with the presentation of ESG factors. This has prompted companies and researchers to explore the benefits of incorporating ESG-related aspects into their reporting practices. The current research presents a comprehensive literature review on the influence of ESG factors on company value. The study utilizes a systematic approach to identify relevant literature and evaluates the methodologies employed in the selected studies. The findings are synthesized to identify common themes and trends, while also assessing the limitations and gaps in the literature. The results of the literature review demonstrate the importance of ESG factors in shaping company value. The findings highlight the positive impact of ESG factors on stakeholder relationships, stock performance volatility, stock earnings, financing costs, and overall economic, environmental, and social performance. The study also identifies the influence of company management perceptions and interactions with rating agencies on ESG factor ratings. This article contributes to the existing body of knowledge by providing a comprehensive overview of the influence of ESG factors on company value based on a rigorous literature review. The insights generated from this research can inform decision-making processes and future research endeavors in the field of ESG factors and company valuation.
Keywords
ESG factors, environmental factors, social factors, governance factors, corporate governance, company value, review.
References
Albitar, K., Hussainey, K., Kolade, N., & Gerged, A. M. (2020). ESG disclosure and firm performance before and after IR: The moderating role of governance mechanisms. International Journal of Accounting & Information Management.
Alsayegh, M. F., Abdul Rahman, R., & Homayoun, S. (2020). Corporate economic, environmental, and social sustainability performance transformation through ESG disclosure. Sustainability, 12(9), 3910.
Amel-Zadeh, A., & Serafeim, G. (2018). Why and how investors use ESG information: Evidence from a global survey. Financial Analysts Journal, 74(3), 87-103.
Anning, F. (2018). An assessment of the traditional theory of firm based assumption of profit maximization in an organization. Available at SSRN 3235066.
Aureli, S., Del Baldo, M., Lombardi, R., & Nappo, F. (2020). Nonfinancial reporting regulation and challenges in sustainability disclosure and corporate governance practices. Business Strategy and the Environment, 29(6), 2392-2403.
Behl, A., Kumari, P. R., Makhija, H., & Sharma, D. (2022). Exploring the relationship of ESG score and firm value using cross-lagged panel analyses: Case of the Indian energy sector. Annals of Operations Research, 313(1), 231-256.
Caraiani, C., Lungu, C. I., Bratu, A., & Dascălu, C. (2018). Exploring the perspectives of integrated reporting for future research opportunities. Accounting and Management Information Systems, 17(4), 532.
Chen, H. Y., & Yang, S. S. (2020). Do investors exaggerate corporate ESG information? Evidence of the ESG momentum effect in the Taiwanese market. Pacific-Basin Finance Journal, 63, 101407.
Cheng, M., Green, W., Conradie, P., Konishi, N., & Romi, A. (2014). The international integrated reporting framework: key issues and future research opportunities. Journal of International Financial Management & Accounting, 25(1), 90-119.
Chouaibi, Y., & Zouari, G. (2021). The effect of corporate social responsibility practices on real earnings management: evidence from a European ESG data. International Journal of Disclosure and Governance, 1-20.
Clementino, E., & Perkins, R. (2021). How do companies respond to environmental, social and governance (ESG) ratings? Evidence from Italy. Journal of Business Ethics, 171, 379-397.
Cordazzo, M., Bini, L., & Marzo, G. (2020). Does the EU Directive on non‐financial information influence the value relevance of ESG disclosure? Italian evidence. Business Strategy and the Environment, 29(8), 3470-3483.
Cuc, S., Gîrneață, A., Iordănescu, M., & Irinel, M. (2015). Environmental and socioeconomic sustainability through textile recycling. Industria Textila, 66(3), 156-163.
Dima, A. (2018). Where is Production Industry heading In the Context of Globalization 2.0. In Proceedings of the 31st International Business Information Management Association Conference (IBIMA) (pp. 1262-1273).
Directive 2014/95/EU, https://eur-lex.europa.eu/legalcontent/EN/TXT/?uri=CELEX%3A32014L0095
Dumay, J., Bernardi, C., Guthrie, J., & Demartini, P. (2016, September). Integrated reporting: A structured literature review. In Accounting forum (Vol. 40, No. 3, pp. 166-185).
Eccles, R. G., Ioannou, I., & Serafeim, G. (2012). The impact of a corporate culture of sustainability on corporate behavior and performance (Vol. 17950, No. 1). Cambridge, MA, USA: National Bureau of Economic Research.
European Parliamnet (2022), https://www.europarl.europa.eu.
Ferrara, E. (2020). Sustainability and Stock Market Returns: A Study of the Impact of ESG Scores on Stock Returns in the Energy Industry and Overall Market.
Freeman, R. E. (2010), „Strategic management: A stakeholder approach”, Cambridge University Press.
Friedman, M. (1970). A Friedman doctrine: The social responsibility of business is to increase its profits. The New York Times Magazine, 13(1970), 32-33.
García-Sánchez, I. M., Raimo, N., Marrone, A., & Vitolla, F. (2020). How does integrated reporting change in light of COVID-19? A Revisiting of the content of the integrated reports. Sustainability, 12(18), 7605.
Girneata, A., Popescu, D. I., Giurgiu, A., Cuc, S., Dobrin, O. C., Voicu, L. & Popa, I. (2015). Performance management practices in Romanian textile and clothing companies. Industria textila, 66(2), 108-113.
Grimaldi, F., Caragnano, A., Zito, M., & Mariani, M. (2020). Sustainability engagement and earnings management: The Italian context. Sustainability, 12(12), 4881.
Hassan, A., Elamer, A. A., Lodh, S., Roberts, L., & Nandy, M. (2021). The future of non‐financial businesses reporting: Learning from the Covid‐19 pandemic. Corporate Social Responsibility and Environmental Management, 28(4), 1231-1240.
Ionescu, G. H., Firoiu, D., Pirvu, R., & Vilag, R. D. (2019). The impact of ESG factors on market value of companies from travel and tourism industry. Technological and Economic Development of Economy, 25(5), 820-849.
Kalaitzoglou, I., Pan, H., & Niklewski, J. (2021). Corporate social responsibility: How much is enough? A higher dimension perspective of the relationship between financial and social performance. Annals of Operations Research, 306(1-2), 209-245.
Li, Y., Gong, M., Zhang, X. Y., & Koh, L. (2018). The impact of environmental, social, and governance disclosure on firm value: The role of CEO power. The British Accounting Review, 50(1), 60-75.
Liu, Y., Kim, C. Y., Lee, E. H., & Yoo, J. W. (2022). Relationship between sustainable management activities and financial performance: Mediating effects of non-financial performance and moderating effects of institutional environment. Sustainability, 14(3), 1168.
Lokuwaduge, C. S. D. S., & Heenetigala, K. (2017). Integrating environmental, social and governance (ESG) disclosure for a sustainable development: An Australian study. Business Strategy and the Environment, 26(4), 438-450.
McBrayer, G. A. (2018). Does persistence explain ESG disclosure decisions?. Corporate Social Responsibility and Environmental Management, 25(6), 1074-1086.
Naveed, M., Ali, S., Iqbal, K., & Sohail, M. K. (2020). Role of financial and non-financial information in determining individual investor investment decision: a signaling perspective. South Asian Journal of Business Studies, 9(2), 261-278.
Nekhili, M., Boukadhaba, A., Nagati, H., & Chtioui, T. (2021). ESG performance and market value: The moderating role of employee board representation. The International Journal of Human Resource Management, 32(14), 3061-3087.
Potcovaru, A. M., & Girneata, A. (2015). The role of the human resources in improving the organizational performance in healthcare sector. In The 4th Multidisciplinary Academic Conference in Prague (pp. 1-9).
Qureshi, M. A., Kirkerud, S., Theresa, K., & Ahsan, T. (2020). The impact of sustainability (environmental, social, and governance) disclosure and board diversity on firm value: The moderating role of industry sensitivity. Business Strategy and the Environment, 29(3), 1199-1214.
Raimo, N., Caragnano, A., Zito, M., Vitolla, F., & Mariani, M. (2021). Extending the benefits of ESG disclosure: The effect on the cost of debt financing. Corporate Social Responsibility and Environmental Management, 28(4), 1412-1421.
Soriya, S., & Rastogi, P. (2022). A systematic literature review on integrated reporting from 2011 to 2020. Journal of Financial Reporting and Accounting, 20(3/4), 558-579.
Sul, W., & Lee, Y. (2020). Effects of corporate social responsibility for environmental, social, and governance sectors on firm value: a comparison between consumer and industrial goods companies. European Journal of International Management, 14(5), 866-890.
Trifu, A. E., Girneata, A., & Potcovaru, M. (2014). Influence of natural factors upon the organization activities. Revista de Management Comparat International, 15(4), 487.
Trifu, A. E., Gîrneață, A., & Potcovaru, A. M. (2015). The Impact of Regulations upon the Startup of New Businesses. Economia: Seria Management, 18, 49-59.
United Nations Industrial Development Organization (2022), „17 Goals to Transform Our World”, https://www.un.org/sustainabledevelopment/.
Velte, P., & Stawinoga, M. (2017). Integrated reporting: The current state of empirical research, limitations and future research implications. Journal of Management Control, 28, 275-320.
Wong, W. C., Batten, J. A., Mohamed-Arshad, S. B., Nordin, S., & Adzis, A. A. (2021). Does ESG certification add firm value?. Finance Research Letters, 39, 101593.
Zhang, F., Qin, X., & Liu, L. (2020). The interaction effect between ESG and green innovation and its impact on firm value from the perspective of information disclosure. Sustainability, 12(5), 1866.
Zhao, C., Guo, Y., Yuan, J., Wu, M., Li, D., Zhou, Y., & Kang, J. (2018). ESG and corporate financial performance: Empirical evidence from China’s listed power generation companies. Sustainability, 10(8), 2607.
Cite this Article: