Stuart L. Gillan, Jay C. Hartzell, Andrew Koch, and ... - Pitt Business

The results of this analysis are reported in Table IX. We find that Tobin’s q is positively
related to all three components of net ESG – that is, higher net ESG scores are associated with
increased firm value. Of note, while the coefficients are similar for both E and G scores, that for
S is an order of magnitude lower. Specifically, firms with an additional unit of net S have
Tobin’s q that is on average 0.02 higher. By comparison, an additional unit of net E or G is
associated with 0.14 higher Tobin’s q.
While such tests suffer from well-known endogeneity concerns and causality is difficult
to assign, the results are consistent with the first two hypotheses of Benabou and Tirole (2010),
and with previous work on the impact of governance on firm value (e.g., Gompers, Ishii and
Metrick (2003) and Bebchuk, Cohen and Farrell (2009)). They are also consistent with the earlier
evidence on operating performance and expenses, and with the lack of evidence that high-ESG
firms also tend to “overpay” their CEOs. Interestingly, the results on institutional ownership
suggest that the valuation impact we estimate may not come through that investor channel
Conclusion
While the maximizing shareholder wealth is the canonical objective function taught in
most corporate finance courses, many have argued for a broader view of corporate
management’s goals. Some of the most prominent areas being put forward as worthy objectives
are firms’ environmental, social and governance (ESG) or corporate social responsibility (CSR)
policies. However, we still know little about the extent to which maximizing shareholder wealth
subsumes such policies – as represented by the “doing well by doing good” slogan – or, about
the impact of these policies on investors’ decisions. As articulated and modeled by Benabou and
Tirole’s (2010), it could be that firms undertake CSR or ESG activities in order to maximize
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