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Exploring environmental, social, and governance disclosure effects on the S&P 500 financial performance
Author(s) -
Minutolo Marcel C.,
Kristjanpoller Werner D.,
Stakeley John
Publication year - 2019
Publication title -
business strategy and the environment
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.123
H-Index - 105
eISSN - 1099-0836
pISSN - 0964-4733
DOI - 10.1002/bse.2303
Subject(s) - tobin's q , return on assets , corporate governance , market capitalization , transparency (behavior) , business , capitalization , corporate social responsibility , stakeholder theory , sustainability , quartile , accounting , economics , finance , stakeholder , stock exchange , stock market , paleontology , ecology , linguistics , philosophy , confidence interval , statistics , mathematics , management , horse , political science , law , biology
Much of the literature measuring the relationship between environmental, social, and governance (ESG) scores and firm performance treats the score as a measure of sustainability performance. In this study, we treat a firm's ESG score as a demonstration of strategic choice in the level of transparency that results in increased firm performance as measured by Tobin's Q and return on assets. Performance differences are a result of choice moderated by the size of the firm as measured by employees and sales. We analyze 467 firms in the S&P 500 from 2009 to 2015. Applying legitimacy and stakeholder theory, we find that there is significant difference between groups with respect to disclosure and performance. The results of quartile analysis by sales, capitalization, and Tobin's Q are relevant to understand the influence that the ESG score has on financial performance. ESG influences on Tobin's Q are greatest for large firms as measured by sales, as opposed to the ESG affects on Tobin's Q and return on asset for smallest firms as measured by market capitalization.