Does ESG Performance Affect Corporate Value? Evidence from Korean Companies

The view has been taken that companies should fulfill their social responsibilities through sustainable management, so environmental, social and governance (ESG) activities are attracting worldwide attention as a new type of corporate stewardship. However, there is no conclusive evidence that ESG actions guarantee corporate profitability or firm value. Using Korean ESG ratings, this study examines how a small or large firm’s ESG performance contributes to firm value and identifies the corporate factors that affect that value. Consistent with the hypotheses, we find positive and significant coefficients for the ESG_score and S_score in the regression equation for firm value. This finding indicates that higher ESG performance and better social management have a positive and significant effect on firm value. We also find positive and significant coefficients for the ESG_score and its three components (E_score, S_score, and G_score) for small firms, but a positive and significant coefficient only for the S_score for large firms. The results suggest that, for small firms, total ESG performance, environmental behavior, social management, and corporate governance positively and significantly affect the firm value, while only social management is accepted by the market as having a positive and significant effect on the value of a large firm.