The Impact of ESG performance on firm value : Evidence from panel data regression analysis

Abstract

This paper attempts to examine the influence of ESG performance on the value of the firm by employing the technique of panel regression analysis in order to offer some empirical findings at a time when previous research has yielded inconsistent findings. With the help of both fixed and random effects models using firm level panel data, this paper attempts to estimate the overall and separate effect of ESG performance on the value of the firm, where the value of the firm has been determined with the help of Tobin's Q, controlling for the effect of firm characteristics and unobserved heterogeneity. According to the findings of this study, there is a strong positive relationship between ESG performance and the value of the firm; however, the impact of the governance pillar of ESG performance stands out the most among all other two pillars. The findings of the moderation analysis show that firm size has a significant positive impact on the ESG-value relation, while high leverage has a significant negative impact on it. It means that the characteristics of firm’s structure and financing have a great importance for its performance. Moreover, the ESG-value relation increases over time, which shows that the growing interest in sustainable performance is developing in the market. The obtained results contribute to the existing knowledge in the ESG field because the value relevance of sustainability performance depends on various factors rather than one.