Does ESG Enhance Investment Efficiency? Evidence from Korea

This paper focuses on ESG as an index for sound corporate finance operations, with a particular emphasis on investment inefficiency. The study examines the relation between ESG and investment inefficiency, furthermore it investigates on moderating effect of ESG. The study utilizes financial data from Korean companies listed on the KRX(Korea Exchange) over the period from 2012 to 2021. The empirical findings indicate that, first, ESG has little impact on investment inefficiency but minute level on over-investment. Second, agency cost problem is not evident in the Korean market, particularly in the area of investment inefficiency. Finally, ESG demonstrates a moderating effect interaction with debt leading to improved investment efficiency. As a non-financial performance metric, ESG is still evolving in its role in representing corporate financial performances.