The impact of Environmental, Social and Governance (ESG) standards on the value of cash holdings: evidence from Canadian firms
The impact of Environmental, Social and Governance (ESG) standards on the value of cash holdings: evidence from Canadian firms
Author
Perez-de-Toledo, Eloisa
Bocatto, Evandro
Faculty Advisor
Date
2018
Keywords
Corporate Social Performance (CSP) , Environmental, Social and Governance (ESG) practices , cash holdings , firm value
Abstract (summary)
Investments in environmental and social initiatives by companies have increased
considerably in recent years, as a response to an increasingly complex and demanding socioeconomic environment. However, a question that still needs to be answered is whether these
investments provide a positive return or contribute to value creation. This paper aims to contribute
at filling this gap by investigating the relationship between Corporate Social Performance (CSP)
as measured by investments in Environmental, Social and Governance (ESG) practices and firm
value by comparing the market value of an extra dollar of cash for firms with high and low ESG
ratings. Our results show that an extra dollar of cash is valued at a premium of $0.13 (or 13%) for
high CSP firms as compared to low CSP firms. We find evidence to support the stakeholders theory
and the resource based view by showing that managers who invest in ESG practices that receive
the support of key stakeholders are acquiring unique resources and creating a sustainable
competitive advantage, which positively affects value. We also show evidence that financial slack
has value in the presence of future investment opportunities and when the cost and availability of
capital is uncertain.
Publication Information
Perez-de-Toledo, E. and Bocatto, E. (2018). Investments in Environmental, Social and Governance (ESG) practices and the value of cash holdings: Evidence from Canada. The European Conference on Sustainability, Energy & the Environment (ECSEE), July 5-6, Brighton, UK.
DOI
Notes
Item Type
Presentation
Language
English
Rights
All Rights Reserved