ESG 활동과 기업가치의 상관관계와 인과관계

초록

ESG activities can enhance firm value by improving future cash flows and/or lowering discount rates. Although prior literature extensively examines the relationship between ESG activities and firm value, there is little evidence regarding whether and how ESG activities are associated with each component of the valuation model (i.e., future cash flows and discount rate). This paper fills this void by exploring the association between ESG activities and future cash flows (i.e., numerator) and the cost of capital (i.e., denominator) and assessing the popular but unsubstantiated claim on the causality. ESG activities can relate to firm value in several ways. First, ESG activities can enhance expected future cash flows by increasing sales and/or enlarging margins. If product market participants (consumers) prefer firms with superior ESG performance in their purchasing decisions, ESG activities increase sales revenues. ESG activities may also increase contributions from suppliers and employees, possibly resulting in better operating margins. Second, ESG activities reduce the cost of raising external capital if capital market participants (investors) believe that ESG activities lower overall firm risk. In this paper, we shed light on whether ESG activities indeed contribute to firm value via such channels. Specifically, we begin by confirming whether ESG activities are associated with factors related to future cash flows and the cost of capital. Going further, we investigate whether and to what extent the observed associations allow causal inferences. Our findings based on ESG scores of Korean listed companies from 2011 to 2019 are summarized as follows. First, we fail to confirm the cash flow channels. Using future sales and operating margins as a proxy for future cash flows, we find no evidence that ESG activities are significantly associated with such proxies. The results on the association between ESG activities and the cost of capital yield mixed evidence. We do find that ESG activities are positively associated with bond credit ratings (i.e., an ex ante proxy for debt financing costs), but such a relation does not exist for interest expenses (i.e., an ex post proxy). As for the cost of raising equity, we report that ESG activities are significantly and negatively related to two proxies for the cost of equity (i.e., E/P ratios as an ex ante measure and the implied cost of equity capital as an ex post measure), suggesting the potential link between ESG activities and firm value. More importantly, however, when we perform the Granger causality test, a methodology widely used to draw the causal inference, we do not find any evidence that the change in ESG activities induces the changes in future cash flows or the cost of capital. In sum, the widely accepted assertion that a firm can improve its enterprise value with ESG activities is not supported by our empirical evidence. Our findings indicate that stakeholders do not systematically incorporate ESG activities into their decision making, suggesting that recent claims for the value effect of ESG activities may be premature. We conduct a set of additional tests. First, we confirm that our findings do not change even in recent years when the importance of ESG activities draws greater attention from the public. Second, our results still hold when we use an alternative proxy for ESG activities to mitigate measurement error issues. Our evidence does not necessarily suggest that ESG activities do not deserve the attention. We admit some important caveats. First, ESG activities may not be deemed to financially perform if the primary purpose of a firm’s ESG activities is to improve the welfare of its stakeholders. Second, although this paper documents the average effect of ESG activities, we acknowledge that the effect of ESG on firm value can be contingent and hence salient for specific industries or firms with certain characteristics. Lastly, the internal validity of ESG scores is in question. Any attempt to draw causality based on a mere association does not help address the caveats.

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