Do environmental, social, and governance activities improve corporate financial performance?

Xie, Jun and Nozawa, Wataru and Yagi, Michiyuki and Fujii, Hidemichi and Managi, Shunsuke (2017): Do environmental, social, and governance activities improve corporate financial performance? Published in: Business Strategy and the Environment (14 August 2018)

Abstract

This study investigated the relationship between corporate efficiency and corporate sustainability to determine whether firms concerned about environmental, social and governance (ESG) issues can also be efficient and profitable. We applied data envelopment analysis to estimate corporate efficiency and investigated the nonlinear relationship between corporate efficiency and ESG disclosure. Evidence shows that corporate transparency regarding ESG information has a positive association with corporate efficiency at the moderate disclosure level, rather than at the high or low disclosure level. Governance information disclosure has the strongest positive linkage with corporate efficiency, followed by social and environmental information disclosure. Moreover, we explored the relationship between particular ESG activities and corporate financial performance (CFP), including corporate efficiency, return on assets and market value. We found that most of the ESG activities reveal a non-negative relationship with CFP. These findings may provide evidence about voluntary corporate social responsibility (CSR) strategy choices for enhancing corporate sustainability.

• Item Type: MPRA Paper
• Language: English
• Keywords: Corporate Efficiency, Data Envelopment Analysis, ESG Disclosure, ESG Activities, Corporate Social Responsibility, Stakeholder Engagement, Sustainable Development
• Subjects: M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M14 - Corporate Culture ; Diversity ; Social Responsibility; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q56 - Environment and Development ; Environment and Trade ; Sustainability ; Environmental Accounts and Accounting ; Environmental Equity ; Population Growth

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