An Economic Exploration of Firm-Level ESG Performance in Europe, Asia, and the US

Mirel Tatomir

An Economic Exploration of Firm-Level ESG Performance in Europe, Asia, and the US

Mirel Tatomir

Publikation: Bog/antologi/afhandling/rapport › Ph.d.-afhandling

Abstract

I over 30 år har miljømæssige, sociale og ledelsesmæssige (ESG) overvejelser fået stigende offentlig opmærksomhed og har tiltrukket betydelig interesse fra forskere på tværs af forskellige fagområder. Typisk fokuserede forskningen på at afgøre, om investering i sådanne praksisser var fordelagtig for virksomhedens præstation. I denne forbindelse har forskere diskuteret interessent- versus aktionærperspektiverne, hvilket var fundamentalt for dannelsen og udviklingen af empirisk litteratur inden for corporate finance og strategisk ledelse. Da disse praksisser nu betragtes som en integreret del af virksomhedens drift, bør forskningsfokus rettes mod interessent- og aktionærperspektivet, da en stabil strøm af litteratur antyder, at investorer i stigende grad er interesserede i og foretrækker ansvarlige virksomheder. Empiriske fund om forholdet mellem ESG og virksomhedspræstation forbliver uafklarede. Mange forskere tilskriver disse forskelle i geografiske, industrielle og tidsmæssige sammenhænge. Alligevel ser det ud til, at få studier overvejer, hvad den underliggende forklaring er, der ville føre til forskelle i forholdet mellem ESG og virksomhedspræstation. Denne afhandling foreslår, at forholdet ændrer sig i konteksten af investoradfærd og opfattelse i relation til geografiske, industrielle og tidsmæssige sammenhænge. Målet med denne afhandling er at (1) fremme forståelsen af de faktorer, der påvirker dette forhold fra et virksomhedsperspektiv ved at foreslå warm-glow teorien som en mulig teoretisk forklaring og (2) besvare opfordringen til yderligere forskning for at finde fremtrædende mønstre af ESG-virksomhedspræstationsforholdet fra nye empiriske kontekster. Forskningsmålet er at adressere det overordnede forskningsspørgsmål om sammenhængen mellem ESG og virksomhedspræstation og hvordan dette afhænger af investoradfærd og opfattelse med hensyn til tid, region og industri, som samlet adresseres på tværs af fem artikler i denne afhandling.

I Artikel 1 er målet at gennemgå og analysere de metodologiske og branchespecifikke kontekster af studier, der undersøger forholdet mellem ESG og virksomhedspræstation. Ved at følge en systematisk litteraturgennemgangsmetode som skitseret af Kraus et al. (2020) og Tranfield et al. (2003), gennemgår jeg 45 empiriske studier af ESG og virksomhedspræstation inden for en branchespecifik kontekst. Gennemgangen viser, at disse studier varierer med hensyn til anvendelsen af forskningsinstrumenter, mål for virksomhedspræstation, ESG-faktorer, kontrolvariabler, driftsindustri og forklaringsmekanisme for industrieffekt (eller manglen deraf). Gennemgangen viser, at få forskere følger en standardiseret forskningsramme til systematisk at undersøge dette fænomen. Implikationerne er, at metodologisk heterogenitet skal overvejes, før der kan drages nogen generaliseringer om forholdet mellem ESG og virksomhedspræstation inden for en branchespecifik kontekst. Baseret på dette udvikler jeg en forskningsramme til kritisk analyse af ESG-virksomhedspræstationsforholdet og fremhæver de ovennævnte faktorer og hvordan de bidrager til resultaterne. Efter en gennemgang af litteraturen og baseret på de teoretiske og metodologiske problemstillinger, der præsenteres, afslutter denne artikel med forslag til fremtidig forskning (såsom at forbinde teori med praksis, overveje ESG-dimensioner og analysere økonomiske implikationer for at nævne nogle få).

I Artikel 2 udfører jeg en metodologisk kvasi-replikation af Nollet, Filis og Mitrokostas (2016) 'Corporate Social Responsibility and Financial Performance: A non-linear and disaggregated approach' og tester empirisk forholdet mellem ESG og virksomhedspræstation i nye geografiske og tidsmæssige sammenhænge. Denne artikel undersøger en stikprøve på 264 nordiske virksomheder på tværs af syv industrier for perioden 2002 – 2019. Resultaterne antyder en mulig tilpasning af investorpræferencer med interessenternes interesser for den nordiske region; lavere risikojusterede afkast indikerer, at investorer foretrækker virksomheder med høj ESG med lille variation i ESG-driftpræstation. På industriniveau observerer jeg, at aktiepræstationen forbliver konsekvent negativ (lavere risikojusterede afkast) (med få undtagelser af ingen statistisk signifikante effekter), mens driftpræstationen har en negativ eller ingen statistisk signifikant sammenhæng i alle undtagen en industri (fremstilling). På landsniveau observerer jeg positive effekter af ESG på driftpræstation konsekvent på tværs af Danmark og Norge og negative effekter af ESG på aktiepræstation på tværs af Norden. Denne artikel bidrager til litteraturen ved at rationalisere disse fund med warmglow teorien. Artiklen foreslår, at investorinteresser synes at konvergere med interessenternes, da de muligvis får nytte af virksomheder med høj ESG i en region, der betragtes som højt udviklet inden for ansvarlige praksisser. Som følge heraf foreslår artiklen, at virksomheder bør motiveres til at investere i ESG.

I Artikel 3 giver jeg nye indsigter i de geografiske og industrielle kontekster af ESG-virksomhedspræstationsforholdet. Jeg udfører en metodologisk kvasi-replikation af Nollet, Filis og Mitrokostas (2016) ved at bruge en fokuseret undersøgelse af fremstillings- og servicesektoren. Min stikprøve omfatter 3245 virksomheder på tværs af USA, Europa og Asien for perioden 2002-2020. Undersøgelsen foreslår, at opfattelsen af greenwashing er en determinant for ESG-virksomhedspræstationsforholdet. Specifikt tester jeg ESG-virksomhedspræstationsforholdet for at finde nøgleindikatorerne for sektorer, der opfattes som greenwashing: 1) højere driftpræstation og 2) højere risikojusterede afkast. For servicesektoren finder jeg ingen beviser, der ville indikere en opfattelse af greenwashing. For fremstillingssektoren finder jeg blandede resultater på tværs af regioner. Bemærkelsesværdigt er resultaterne for USA i overensstemmelse med opfattelsen af greenwashing.

I Artikel 4 giver jeg nye indsigter i de geografiske, industrielle og tidsmæssige kontekster af ESG-virksomhedspræstationsforholdet. Jeg udfører en metodologisk kvasi-replikation af Nollet, Filis og Mitrokostas (2016) ved at bruge en fokuseret undersøgelse af banksektoren. For denne undersøgelse omfatter prøven 882 virksomheder på tværs af USA, Europa og Asien for perioden 2002-2020. I denne artikel undersøger jeg, hvordan ESG-virksomhedspræstationsforholdet ændrer sig over tid, specifikt ved at sammenligne perioder med normal usikkerhed med perioder med høj usikkerhed. Denne undersøgelse finder, at ESG-aktiepræstationsforholdet ændrer sig i perioder over tid. I perioder med normal usikkerhed indikerer lavere risikojusterede afkast, at investorer foretrækker høj ESG. I perioder med høj usikkerhed indikerer højere risikojusterede afkast det modsatte. ESG-driftpræstationen viser lidt eller ingen variation over tid. Samlet set finder jeg, at ESGvirksomhedspræstationsforholdet delvist er betinget af investorers opfattelse over tid, især i tider med høj usikkerhed.

I Artikel 5 undersøger jeg metoden for Asset4 ESG-scoren. Denne artikel fremhæver, at ESG-scoren blev udviklet til at lette ansvarlige investeringsbeslutninger, men siden har udviklet sig til også at give indsigt i virksomhedens ansvarlige praksisser for andre interessenter. Formålet med denne artikel er at forstå funktionaliteten af Asset4 ESG-scoren med en detaljeret redegørelse for underliggende data. Efterfølgende reflekterer denne artikel over de metodologiske udfordringer, som de vedrører validitet og pålidelighed. Som en konsekvens af de metodologiske begrænsninger, der præsenteres i denne artikel, argumenterer jeg for potentialet for fremkomsten af perverse økonomiske incitamenter og angiver behovet for mere dybdegående analyser af de underliggende data.

Hovedfundene i denne afhandling er, at dynamikken i ESG-virksomhedspræstationsforholdet afhænger af investorpræference i relation til geografiske, industrielle og tidsmæssige kontekster. Der synes at være en tilpasning af investorpræferencer med interessenternes interesser, da investorer i stigende grad viser en præference for ansvarlige virksomheder. Dette er dog betinget af investorernes opfattelser, som de relaterer sig til geografiske, industrielle og tidsmæssige kontekster. Dette fremhæver vigtigheden af at forstå, hvorfor ESG-virksomhedspræstationsforholdet kan ændre sig og desuden vigtigheden af pålideligheden af ESG-scoren. Denne afhandling adresserer en række teoretiske og praktiske implikationer og udvikler retninger for fremtidig forskning for mere dybdegående undersøgelser

Originalsprog	Engelsk

Udgivelsessted	Roskilde
Forlag	Roskilde Universitet
Antal sider	247
Status	Udgivet - 2024

Navn	FS & P Ph.D. afhandlinger
ISSN	0909-9174

Emneord

ESG (miljømæssig, social, ledelsesmæssig)
Virksomhedspræstation
Investorpræferencer og corporate finance

Citationsformater

@phdthesis{c0a6e5de076a49779a995ccc777001c9,

title = "An Economic Exploration of Firm-Level ESG Performance in Europe, Asia, and the US",

abstract = "For well over 30 years, environmental, social, and governance (ESG) considerations have gained increasing public attention and attracted significant interest from scholars across different fields of study. Typically, research has centered on determining if investing in such practices is beneficial to firm performance. In this regard scholars have debated the stakeholder versus shareholder perspective which was fundamental in the formation and evolution of empirical literature within corporate finance and strategic management. Given that these practices are now considered an integral part of firm operations, research focus should be redirected to stakeholder and shareholder perspective as a steady stream of literature suggests investors are increasingly interested in and prefer responsible firms. Empirical findings on the ESG–firm performance relationship remain inconclusive. Many scholars attribute this to differences in geographic, industry, and temporal contexts. Yet, limited studies seem to consider what is the underlying explanation that would lead to differences in the ESG–firm performance relationship. This dissertation proposes that the relationship changes in the context of investor behavior and perception in relation to geographic, industry, and temporal contexts. The aim of this dissertation is to (1) advance the understanding of the factors that influence this relationship from a firm-level perspective, proposing the warm-glow theory as a possible theoretical explanation, and (2) answer the call for further research to find salient patterns of the ESG–firm performance relationship from new empirical contexts, without increasing methodological heterogeneity. The research objective is to address the overarching research question of the association of ESG to firm performance and how this is dependent on investor behavior and perception regarding time, region, and industry, as collectively addressed across five papers in this dissertation. In Paper 1, the aim is to review and analyze the methodological and industry-specific contexts of studies investigating the relationship between ESG and firm performance. Following a systematic literature review method as outlined by Kraus et al. (2020) and Tranfield et al. (2003), I review 45 empirical studies of ESG and firm performance within an industry-specific context. The findings of the review show that these studies vary in terms of research instrument, measures of firm performance, ESG factor, control variables, industry of operation, and explanatory mechanism for industry effect (or lack thereof). The findings of the review show that few scholars follow a standardized research framework to systematically investigate this phenomenon. The implications are that methodological heterogeneity must be considered prior to making any generalizations about the ESG–firm performance relationship within an industry-specific context. Based on this, I develop a research framework for critical analysis of the ESG–firm performance relationship and highlight the above-mentioned factors and how they contribute to the findings. Following a survey of the literature and based on the theoretical and methodological issues presented, this paper concludes with suggestions for future research (such as linking theory to practice, consideration of ESG dimensionality, and analyzing economic implications, to name but a few). In Paper 2, I conduct a methodological quasi-replication of Nollet, Filis, and Mitrokostas{\textquoteright} (2016) “Corporate social responsibility and financial performance: A non-linear and disaggregated approach,” and empirically test the relationship between ESG and firm performance in new geographic and temporal contexts. This paper investigates a sample of 264 Nordic firms across seven industries for the period 2002– 2019. The findings suggest a possible alignment of investor preferences with stakeholder interests for the Nordic region; lower risk-adjusted returns indicate that investors have a preference for firms with a high ESG, with little variation in ESG-operating performance. At the industry level, I observe that stock performance remains consistently negative (lower risk-adjusted returns) (with a few industries exception of no statistically significant effects), while operating performance has a negative or not statistically significant relationship in all but one industry (manufacturing). At the country level, I observe positive effects of ESG on operating performance consistently across Denmark and Norway, and negative effects of ESG on stock performance across the Nordics. This paper contributes to the literature by rationalizing these findings with the warm-glow theory. The paper suggests that investor interests seem to be converging with those of stakeholders as they may be deriving utility for firms with a high ESG in a region that is considered highly developed in responsible practices. As a consequence, the paper suggests firms should be incentivized to invest in ESG. In Paper 3, I provide new insights into the geographic and industrial contexts of the ESG–firm performance relationship. I conduct a methodological quasireplication of Nollet, Filis, and Mitrokostas (2016) using a focused study of the manufacturing and services sector. My sample includes 3,245 firms across the US, Europe, and Asia for the period 2002–2020. This study proposes that the perception of greenwashing is a determinant of the ESG–firm performance relationship. Specifically, I test the ESG–firm performance relationship in order to find the key indicators for sectors perceived to be greenwashing: (1) higher operating performance and (2) higher risk-adjusted returns. For the services sector, I find no evidence that would indicate a perception of greenwashing. For the manufacturing sector, I find mixed results across regions. Notably for the US, results exhibit these indicators considered to be in line with the perception of greenwashing. In Paper 4, I provide new insights into the geographic, industrial, and temporal contexts of the ESG–firm performance relationship. I conduct a methodological quasi-replication of Nollet, Filis, and Mitrokostas (2016) using a focused study of the banking industry. For this study, the sample includes 882 firms across the US, Europe, and Asia for the period 2002–2020. In this paper I investigate how the ESG–firm performance relationship changes in time, specifically comparing periods of normal uncertainty to periods of high uncertainty. This study finds that the ESG–stock performance relationship changes during periods across time. During periods of normal uncertainty, lower risk-adjusted returns suggest that investors prefer a high ESG. During periods of high uncertainty, higher risk-adjusted returns suggest the contrary. The ESG-operating performance shows little to no variation across time. In sum, I find that the ESG–firm performance relationship is partially contingent on investors{\textquoteright} perception in time, particularly in times of high uncertainty. In Paper 5, I examine the methodology of the Asset4 ESG score. This paper highlights that the ESG score was developed to facilitate responsible investment decision-making but has since evolved to provide insights into the responsible practices of the firm to other stakeholders as well. The purpose of this paper is to understand the functionality of the Asset4 ESG score with a detailed account of underlying data. Subsequently, this paper reflects on the methodological challenges as they pertain to validity and reliability. As a consequence of the methodological limitations presented in this paper, I argue the potential for the emergence of perverse economic incentives and state the need for more in-depth analyses of the underlying data. The main finding and key contribution of this dissertation is that the dynamics of the ESG–firm performance relationship are dependent on investor preference in relation to geographic, industrial, and temporal contexts. There appears to be an alignment of investor preferences with stakeholder interests as investors increasingly show a preference for responsible firms. This is, however, contingent on investors{\textquoteright} perceptions as they relate to geographic, industrial, and temporal contexts. This highlights the importance of understanding why the ESG–firm performance relationship may change and, additionally, the importance of the reliability of the ESG score. This dissertation addresses a variety of theoretical and practical implications and develops directions for more in-depth future research.",

keywords = "ESG (milj{\o}m{\ae}ssig, social, ledelsesm{\ae}ssig), Virksomhedspr{\ae}station, Investorpr{\ae}ferencer og corporate finance, ESG (environmental, social, governance), Firm performance, Investor preferences, Corporate finance",

author = "Mirel Tatomir",

note = "Supervisor: Johannes Dreyer (RUC) Co-supervisors: Kristian Sund (RUC) \& Jiang Yu (University of Chinese Academy of Sciences)",

year = "2024",

language = "English",

series = "FS \& P Ph.D. afhandlinger",

publisher = "Roskilde Universitet",

}

TY - BOOK

T1 - An Economic Exploration of Firm-Level ESG Performance in Europe, Asia, and the US

AU - Tatomir, Mirel

N1 - Supervisor: Johannes Dreyer (RUC) Co-supervisors: Kristian Sund (RUC) & Jiang Yu (University of Chinese Academy of Sciences)

PY - 2024

Y1 - 2024

N2 - For well over 30 years, environmental, social, and governance (ESG) considerations have gained increasing public attention and attracted significant interest from scholars across different fields of study. Typically, research has centered on determining if investing in such practices is beneficial to firm performance. In this regard scholars have debated the stakeholder versus shareholder perspective which was fundamental in the formation and evolution of empirical literature within corporate finance and strategic management. Given that these practices are now considered an integral part of firm operations, research focus should be redirected to stakeholder and shareholder perspective as a steady stream of literature suggests investors are increasingly interested in and prefer responsible firms. Empirical findings on the ESG–firm performance relationship remain inconclusive. Many scholars attribute this to differences in geographic, industry, and temporal contexts. Yet, limited studies seem to consider what is the underlying explanation that would lead to differences in the ESG–firm performance relationship. This dissertation proposes that the relationship changes in the context of investor behavior and perception in relation to geographic, industry, and temporal contexts. The aim of this dissertation is to (1) advance the understanding of the factors that influence this relationship from a firm-level perspective, proposing the warm-glow theory as a possible theoretical explanation, and (2) answer the call for further research to find salient patterns of the ESG–firm performance relationship from new empirical contexts, without increasing methodological heterogeneity. The research objective is to address the overarching research question of the association of ESG to firm performance and how this is dependent on investor behavior and perception regarding time, region, and industry, as collectively addressed across five papers in this dissertation. In Paper 1, the aim is to review and analyze the methodological and industry-specific contexts of studies investigating the relationship between ESG and firm performance. Following a systematic literature review method as outlined by Kraus et al. (2020) and Tranfield et al. (2003), I review 45 empirical studies of ESG and firm performance within an industry-specific context. The findings of the review show that these studies vary in terms of research instrument, measures of firm performance, ESG factor, control variables, industry of operation, and explanatory mechanism for industry effect (or lack thereof). The findings of the review show that few scholars follow a standardized research framework to systematically investigate this phenomenon. The implications are that methodological heterogeneity must be considered prior to making any generalizations about the ESG–firm performance relationship within an industry-specific context. Based on this, I develop a research framework for critical analysis of the ESG–firm performance relationship and highlight the above-mentioned factors and how they contribute to the findings. Following a survey of the literature and based on the theoretical and methodological issues presented, this paper concludes with suggestions for future research (such as linking theory to practice, consideration of ESG dimensionality, and analyzing economic implications, to name but a few). In Paper 2, I conduct a methodological quasi-replication of Nollet, Filis, and Mitrokostas’ (2016) “Corporate social responsibility and financial performance: A non-linear and disaggregated approach,” and empirically test the relationship between ESG and firm performance in new geographic and temporal contexts. This paper investigates a sample of 264 Nordic firms across seven industries for the period 2002– 2019. The findings suggest a possible alignment of investor preferences with stakeholder interests for the Nordic region; lower risk-adjusted returns indicate that investors have a preference for firms with a high ESG, with little variation in ESG-operating performance. At the industry level, I observe that stock performance remains consistently negative (lower risk-adjusted returns) (with a few industries exception of no statistically significant effects), while operating performance has a negative or not statistically significant relationship in all but one industry (manufacturing). At the country level, I observe positive effects of ESG on operating performance consistently across Denmark and Norway, and negative effects of ESG on stock performance across the Nordics. This paper contributes to the literature by rationalizing these findings with the warm-glow theory. The paper suggests that investor interests seem to be converging with those of stakeholders as they may be deriving utility for firms with a high ESG in a region that is considered highly developed in responsible practices. As a consequence, the paper suggests firms should be incentivized to invest in ESG. In Paper 3, I provide new insights into the geographic and industrial contexts of the ESG–firm performance relationship. I conduct a methodological quasireplication of Nollet, Filis, and Mitrokostas (2016) using a focused study of the manufacturing and services sector. My sample includes 3,245 firms across the US, Europe, and Asia for the period 2002–2020. This study proposes that the perception of greenwashing is a determinant of the ESG–firm performance relationship. Specifically, I test the ESG–firm performance relationship in order to find the key indicators for sectors perceived to be greenwashing: (1) higher operating performance and (2) higher risk-adjusted returns. For the services sector, I find no evidence that would indicate a perception of greenwashing. For the manufacturing sector, I find mixed results across regions. Notably for the US, results exhibit these indicators considered to be in line with the perception of greenwashing. In Paper 4, I provide new insights into the geographic, industrial, and temporal contexts of the ESG–firm performance relationship. I conduct a methodological quasi-replication of Nollet, Filis, and Mitrokostas (2016) using a focused study of the banking industry. For this study, the sample includes 882 firms across the US, Europe, and Asia for the period 2002–2020. In this paper I investigate how the ESG–firm performance relationship changes in time, specifically comparing periods of normal uncertainty to periods of high uncertainty. This study finds that the ESG–stock performance relationship changes during periods across time. During periods of normal uncertainty, lower risk-adjusted returns suggest that investors prefer a high ESG. During periods of high uncertainty, higher risk-adjusted returns suggest the contrary. The ESG-operating performance shows little to no variation across time. In sum, I find that the ESG–firm performance relationship is partially contingent on investors’ perception in time, particularly in times of high uncertainty. In Paper 5, I examine the methodology of the Asset4 ESG score. This paper highlights that the ESG score was developed to facilitate responsible investment decision-making but has since evolved to provide insights into the responsible practices of the firm to other stakeholders as well. The purpose of this paper is to understand the functionality of the Asset4 ESG score with a detailed account of underlying data. Subsequently, this paper reflects on the methodological challenges as they pertain to validity and reliability. As a consequence of the methodological limitations presented in this paper, I argue the potential for the emergence of perverse economic incentives and state the need for more in-depth analyses of the underlying data. The main finding and key contribution of this dissertation is that the dynamics of the ESG–firm performance relationship are dependent on investor preference in relation to geographic, industrial, and temporal contexts. There appears to be an alignment of investor preferences with stakeholder interests as investors increasingly show a preference for responsible firms. This is, however, contingent on investors’ perceptions as they relate to geographic, industrial, and temporal contexts. This highlights the importance of understanding why the ESG–firm performance relationship may change and, additionally, the importance of the reliability of the ESG score. This dissertation addresses a variety of theoretical and practical implications and develops directions for more in-depth future research.

AB - For well over 30 years, environmental, social, and governance (ESG) considerations have gained increasing public attention and attracted significant interest from scholars across different fields of study. Typically, research has centered on determining if investing in such practices is beneficial to firm performance. In this regard scholars have debated the stakeholder versus shareholder perspective which was fundamental in the formation and evolution of empirical literature within corporate finance and strategic management. Given that these practices are now considered an integral part of firm operations, research focus should be redirected to stakeholder and shareholder perspective as a steady stream of literature suggests investors are increasingly interested in and prefer responsible firms. Empirical findings on the ESG–firm performance relationship remain inconclusive. Many scholars attribute this to differences in geographic, industry, and temporal contexts. Yet, limited studies seem to consider what is the underlying explanation that would lead to differences in the ESG–firm performance relationship. This dissertation proposes that the relationship changes in the context of investor behavior and perception in relation to geographic, industry, and temporal contexts. The aim of this dissertation is to (1) advance the understanding of the factors that influence this relationship from a firm-level perspective, proposing the warm-glow theory as a possible theoretical explanation, and (2) answer the call for further research to find salient patterns of the ESG–firm performance relationship from new empirical contexts, without increasing methodological heterogeneity. The research objective is to address the overarching research question of the association of ESG to firm performance and how this is dependent on investor behavior and perception regarding time, region, and industry, as collectively addressed across five papers in this dissertation. In Paper 1, the aim is to review and analyze the methodological and industry-specific contexts of studies investigating the relationship between ESG and firm performance. Following a systematic literature review method as outlined by Kraus et al. (2020) and Tranfield et al. (2003), I review 45 empirical studies of ESG and firm performance within an industry-specific context. The findings of the review show that these studies vary in terms of research instrument, measures of firm performance, ESG factor, control variables, industry of operation, and explanatory mechanism for industry effect (or lack thereof). The findings of the review show that few scholars follow a standardized research framework to systematically investigate this phenomenon. The implications are that methodological heterogeneity must be considered prior to making any generalizations about the ESG–firm performance relationship within an industry-specific context. Based on this, I develop a research framework for critical analysis of the ESG–firm performance relationship and highlight the above-mentioned factors and how they contribute to the findings. Following a survey of the literature and based on the theoretical and methodological issues presented, this paper concludes with suggestions for future research (such as linking theory to practice, consideration of ESG dimensionality, and analyzing economic implications, to name but a few). In Paper 2, I conduct a methodological quasi-replication of Nollet, Filis, and Mitrokostas’ (2016) “Corporate social responsibility and financial performance: A non-linear and disaggregated approach,” and empirically test the relationship between ESG and firm performance in new geographic and temporal contexts. This paper investigates a sample of 264 Nordic firms across seven industries for the period 2002– 2019. The findings suggest a possible alignment of investor preferences with stakeholder interests for the Nordic region; lower risk-adjusted returns indicate that investors have a preference for firms with a high ESG, with little variation in ESG-operating performance. At the industry level, I observe that stock performance remains consistently negative (lower risk-adjusted returns) (with a few industries exception of no statistically significant effects), while operating performance has a negative or not statistically significant relationship in all but one industry (manufacturing). At the country level, I observe positive effects of ESG on operating performance consistently across Denmark and Norway, and negative effects of ESG on stock performance across the Nordics. This paper contributes to the literature by rationalizing these findings with the warm-glow theory. The paper suggests that investor interests seem to be converging with those of stakeholders as they may be deriving utility for firms with a high ESG in a region that is considered highly developed in responsible practices. As a consequence, the paper suggests firms should be incentivized to invest in ESG. In Paper 3, I provide new insights into the geographic and industrial contexts of the ESG–firm performance relationship. I conduct a methodological quasireplication of Nollet, Filis, and Mitrokostas (2016) using a focused study of the manufacturing and services sector. My sample includes 3,245 firms across the US, Europe, and Asia for the period 2002–2020. This study proposes that the perception of greenwashing is a determinant of the ESG–firm performance relationship. Specifically, I test the ESG–firm performance relationship in order to find the key indicators for sectors perceived to be greenwashing: (1) higher operating performance and (2) higher risk-adjusted returns. For the services sector, I find no evidence that would indicate a perception of greenwashing. For the manufacturing sector, I find mixed results across regions. Notably for the US, results exhibit these indicators considered to be in line with the perception of greenwashing. In Paper 4, I provide new insights into the geographic, industrial, and temporal contexts of the ESG–firm performance relationship. I conduct a methodological quasi-replication of Nollet, Filis, and Mitrokostas (2016) using a focused study of the banking industry. For this study, the sample includes 882 firms across the US, Europe, and Asia for the period 2002–2020. In this paper I investigate how the ESG–firm performance relationship changes in time, specifically comparing periods of normal uncertainty to periods of high uncertainty. This study finds that the ESG–stock performance relationship changes during periods across time. During periods of normal uncertainty, lower risk-adjusted returns suggest that investors prefer a high ESG. During periods of high uncertainty, higher risk-adjusted returns suggest the contrary. The ESG-operating performance shows little to no variation across time. In sum, I find that the ESG–firm performance relationship is partially contingent on investors’ perception in time, particularly in times of high uncertainty. In Paper 5, I examine the methodology of the Asset4 ESG score. This paper highlights that the ESG score was developed to facilitate responsible investment decision-making but has since evolved to provide insights into the responsible practices of the firm to other stakeholders as well. The purpose of this paper is to understand the functionality of the Asset4 ESG score with a detailed account of underlying data. Subsequently, this paper reflects on the methodological challenges as they pertain to validity and reliability. As a consequence of the methodological limitations presented in this paper, I argue the potential for the emergence of perverse economic incentives and state the need for more in-depth analyses of the underlying data. The main finding and key contribution of this dissertation is that the dynamics of the ESG–firm performance relationship are dependent on investor preference in relation to geographic, industrial, and temporal contexts. There appears to be an alignment of investor preferences with stakeholder interests as investors increasingly show a preference for responsible firms. This is, however, contingent on investors’ perceptions as they relate to geographic, industrial, and temporal contexts. This highlights the importance of understanding why the ESG–firm performance relationship may change and, additionally, the importance of the reliability of the ESG score. This dissertation addresses a variety of theoretical and practical implications and develops directions for more in-depth future research.

KW - ESG (miljømæssig, social, ledelsesmæssig)

KW - Virksomhedspræstation

KW - Investorpræferencer og corporate finance

KW - ESG (environmental, social, governance)

KW - Firm performance

KW - Investor preferences

KW - Corporate finance

M3 - Ph.D. thesis

T3 - FS & P Ph.D. afhandlinger

BT - An Economic Exploration of Firm-Level ESG Performance in Europe, Asia, and the US

PB - Roskilde Universitet

CY - Roskilde

ER -