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The impact of ESG scores on the value relevance of fair value hierarchy of financial instruments: Evidence from European Banks

Author

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  • Di Martino, G.
  • Miglietta, F.
  • Potì, V.

Abstract

Using hand-collected accounting data on 154 European banks, we investigate the impact of ESG scores on the value-relevance of the fair value hierarchy (FVH) of financial instruments held on their balance sheets. Our findings are multi-faceted. Banks that possess an ESG score are valued at a premium on book value and the presence of the ESG score is associated with lower (higher) value-relevance of the reported fair value of Level 1 (Level 2 and 3) items. The value relevance of Level 2 and 3 FVH levels, however, decreases in the ESG score. These findings imply that, while availability of ESG scores proxies for market visibility, stock market investors either do not treat the ESG score as a reliable measure of ESG performance or, embracing the “overinvestment view” rather than the “risk mitigation view” of Corporate Social Responsibility (CSR), do not associate positive ESG performance to greater corporate transparency and trustworthiness.

Suggested Citation

  • Di Martino, G. & Miglietta, F. & Potì, V., 2024. "The impact of ESG scores on the value relevance of fair value hierarchy of financial instruments: Evidence from European Banks," Research in International Business and Finance, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:riibaf:v:71:y:2024:i:c:s0275531924002447
    DOI: 10.1016/j.ribaf.2024.102451
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    Keywords

    Banks; CSR; ESG; fair value hierarchy; value relevance;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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