Developing a model to assess the impact of ESG practices effectiveness and their disclosure quality on the value of companies in the risk controlling system
Subject. The article considers the impact of specific sustainable development practices (environmental, social, and corporate governance-related) on companies' ability to create value. Objectives. The study aims to determine the directions and magnitude of the impact of sustainable development practices of global non-financial companies on their market value in the coordinates "effectiveness of ESG practices – quality of ESG practice disclosure". Methods. We employed a classification method enabling to identify four patterns in the space "effectiveness of ESG factors – quality of ESG disclosure". To determine the impact of company's positioning by patterns on its market value, we used one-way variance analysis (one-way ANOVA). We applied the system generalized method of moments (SYS-GMM) to determine the impact of individual elements from the indices on company value. Results. We constructed indices of ESG practices effectiveness and the quality of ESG practices disclosure of global companies; identified patterns of following sustainable development practices by company in the coordinates "effectiveness –quality of disclosure" based on index values; identified links between the identified patterns and the company's ability to create value. Conclusions. The results of the study proved that investors consider the effectiveness of sustainable development practices in a complex, both from the point of view of effectiveness and from disclosures. The findings can be used to develop practical risk-controlling tools, modern methods for assessing value creation in compliance with the principles of sustainable development, and for reducing environmental and social risks.
Keywords: sustainable development, ESG practice, risk controlling, company value
References:
Amores-Salvadó J., Martin-de Castro G., Albertini E. Walking the talk, but above all, talking the walk: Looking green for market stakeholder engagement. Corporate Social Responsibility and Environmental Management, 2023, vol. 30, iss. 1, pp. 431–442. "Link"
Lee M., Suh I. Understanding the effects of Environment, Social, and Governance conduct on financial performance: Arguments for a process and integrated modelling approach. Sustainable Technology and Entrepreneurship, 2022, vol. 1, iss. 1, no. 100004. "Link"
Buallay A. Is sustainability reporting (ESG) associated with performance? Evidence from the European banking sector. Management of Environmental Quality, 2019, vol. 30, iss. 1, pp. 98–115. "Link"
Junius D., Adisurjo A., Rijanto Y.A., Adelina Y.E. The impact of ESG performance to firm performance and market value. Jurnal Aplikasi Akuntansi, 2020, vol. 5, iss. 1, pp. 21–41. "Link"
Eun-Hee Kim, Lyon T.P. Greenwash vs. Brownwash: Exaggeration and undue modesty in corporate sustainability disclosure. Organization Science, 2015, vol. 26, iss. 3, pp. 705–723. "Link"
Ginder W., Sang-Eun Byun, Wi-Suk Kwon. Effects of internal-external congruence-based CSR positioning: An attribution theory approach. Journal of Business Ethics, 2021, vol. 169, pp. 355–369. "Link"
Aupperle K.E., Carroll A.B., Hatfield J.D. An empirical examination of the relationship between corporate social responsibility and profitability. Academy of Management Journal, 1985, vol. 28, iss. 2, pp. 446–463. "Link"
Shane P.B., Spicer B.H. Market response to environmental information produced outside the firm. The Accounting Review, 1983, vol. 58, iss. 3, pp. 521–538. "Link"
Hughes K.E. The value relevance of nonfinancial measures of air pollution in the electric utility industry. The Accounting Review, 2000, vol. 75, iss. 2, pp. 209–228. "Link"
Radhakrishnan S., Tsang A., Liu R. A corporate social responsibility framework for accounting research. The International Journal of Accounting, 2018, vol. 53, iss. 4, pp. 274–294. "Link"
Khan M., Serafeim G., Yoon A. Corporate sustainability: First evidence on materiality. The Accounting Review, 2016, vol. 91, iss. 6, pp. 1697–1724. "Link"
Griffin P.A., Lont D.H., Sun E.Y. The relevance to investors of greenhouse gas emission disclosures. Contemporary Accounting Research, 2017, vol. 34, iss. 2, pp. 1265–1297. "Link"
Guiral A., Moon D., Hun-Tong Tan, Yao Yu. What drives investor response to CSR performance reports? Contemporary Accounting Research, 2020, vol. 37, iss. 1, pp. 101–130. "Link"
Johnson J.A., Theis J., Vitalis A., Young D. The influence of firms' emissions management strategy disclosures on investors' valuation judgments. Contemporary Accounting Research, 2020, vol. 37, iss. 2, pp. 642–664. "Link"
Bartov E., Marra A., Momenté F. Corporate social responsibility and the market reaction to negative events: Evidence from inadvertent and fraudulent restatement announcements. The Accounting Review, 2021, vol. 96, iss. 2, pp. 81–106. "Link"
Gallego Alvarez I., Ortas E., Vicente-Villardón J.L., Alvarez Etxeberria I. Institutional constraints, stakeholder pressure and corporate environmental reporting policies. Business Strategy and the Environment, 2017, vol. 26, iss. 6, pp. 807–825. "Link"
Testa F., Miroshnychenko I., Barontini R., Frey M. Does it pay to be a greenwasher or a brownwasher? Business Strategy and the Environment, 2018, vol. 27, iss. 7, pp. 1104–1116. "Link"
Arellano M., Bover O. Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 1995, vol. 68, iss. 1, pp. 29–51. "Link" 01642-D
Roodman D. How to do Xtabond2: An Introduction to Difference and System GMM in Stata. The Stata Journal, 2009, vol. 9, iss. 1, pp. 86–136. "Link"
Arellano M., Bond S. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 1991, vol. 58, iss. 2, pp. 277–297. "Link"
Ki-Hoon Lee, Byung Min, Keun-Hyo Yook. The impacts of carbon (CO2) emissions and environmental research and development (R&D) investment on firm performance. International Journal of Production Economics, 2015, vol. 167, pp. 1–11. "Link"
Salehi M., Fahimifard S.H., Zimon G. et al. The Effect of CO2 Gas Emissions on the Market Value, Price and Shares Returns. Energies, 2022, vol. 15, iss. 23. "Link"
Ball R., Brown P.R. Ball and Brown (1968): A retrospective. The Accounting Review, 1968, vol. 89, iss. 1, pp. 1–26. "Link"
Rahayati Ahmad, Roshima Said, Syahiza Arsad. The Board Governance Mechanism and the Effect of Concentration Ownership on Malaysia Companies Performance. International Journal of Academic Research in Business and Social Sciences, 2017, vol. 7, iss. 2, pp. 757–768. "Link"
Bhatt R.R., Bhattacharya S. Do board characteristics impact firm performance? An agency and resource dependency theory perspective. Asia-Pacific Journal of Management Research and Innovation, 2015, vol. 11, iss. 4, pp. 274–287. "Link"
Mihail B.A., Micu C.D. The influence of the independent non-executive board members on the financial performance of the companies listed in the Bucharest Stock Exchange. Journal of Risk and Financial Management, 2021, vol. 14, iss. 10. "Link"
Fama E.F., Jensen M.C. Separation of ownership and control. The Journal of Law and Economics, 1983, vol. 26, iss. 2, pp. 301–325. "Link"
Davis J.H., Schoorman F.D., Donaldson L. Toward a Stewardship Theory of Management. Academy of Management Review, 1997, vol. 22, iss. 1, pp. 20–47. "Link"
Duong Trong Nhan, Vo Thi Quy. The Impact of Director Board’s Characteristics on Firm Value: A Study on HOSE. International Journal of Science and Research (IJSR), 2016, vol. 5, iss. 2, pp. 646–650. "Link"
Li M., Roberts H. CEO board membership: Implications for firm value. Pacific Accounting Review, 2018, vol. 30, iss. 3, pp. 352–370. "Link"
