Corporate Social Responsibility and Market Efficiency: Evidence from ESG and Misvaluation Measures

By Yannik Bofinger, Kim J. Heyden, Björn Rock. Social Science Research Network, 2020

242 citations recorded by the source corpus.

We study the impact of corporate social responsibility (CSR) on firm misvaluation in the US. Our results indicate that a firm’s Environmental, Social and Governance (ESG) profile significantly affects valuation: an improvement of a firm’s CSR leads to a higher ratio of actual to true firm value. Analyzing the relation between ESG and misvaluation separately, we find that ESG expands existing overvaluation whereas it reduces undervalued firms' deviation from the true value. We argue that both valuation effects are attributable to the worldwide trend of sustainable investing. Further analyses reveal a moderating role of market sentiment towards sustainability in the ESG-misvaluation relationship.

Subfields: Accounting, Marketing, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/fcea4db6767a5b67ed3d5036a3001c31581ff824