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Corporate social responsibility and market efficiency: Evidence from ESG and misvaluation measures

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  • Bofinger, Yannik
  • Heyden, Kim J.
  • Rock, Björn

Abstract

We study the impact of corporate social responsibility (CSR) on firm misvaluation in the US. Our results indicate that a firms Environmental, Social and Governance (ESG) profile significantly affects valuation: an improvement of a firms 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. Our findings suggest that firms CSR is indeed perceived as valuable by shareholders and supports stakeholder theorys view in considering CSR as beneficial.

Suggested Citation

  • Bofinger, Yannik & Heyden, Kim J. & Rock, Björn, 2022. "Corporate social responsibility and market efficiency: Evidence from ESG and misvaluation measures," Journal of Banking & Finance, Elsevier, vol. 134(C).
    • Handle: RePEc:eee:jbfina:v:134:y:2022:i:c:s0378426621002739
    DOI: 10.1016/j.jbankfin.2021.106322
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    More about this item

    Keywords

    Corporate social responsibility; ESG; Misvaluation; Sustainable investing; Market efficiency; Sentiment;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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