Repository logo

The impact of Environmental, Social and Governance (ESG) standards on the value of cash holdings: evidence from Canadian firms

Faculty Advisor




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.



Item Type





All Rights Reserved