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The Impact of ESG Scores on both Firm Profitability and Value in the Automotive Sector (2002-2016)

Author

Listed:
  • Carlo Bellavite Pellegrini

    (Department of Economic Policy and CSEA, Catholic University of Sacred Heart)

  • Raul Caruso

    (European Center of Peace Science, Integration and Cooperation CESPIC; Catholic University 'Our Lady of Good Counsel')

  • Rocco Cifone

    (CSEA, Catholic University of Sacred Heart)

Abstract

This study analyses the impact of ESG scores on firms’ profitability in the automotive sector between 2002 and 2016. In particular, we exploit a novel dataset of European and North American listed firms. Results show that the environmental component of the ESG scores is positively associated with firms’ profitability. Among the components of overall ESG, the environmental score is the only that exhibits the most robust association. Eventually when considering firm value proxied by means of Tobin’s Q, results show a negative association between the Tobin’s Q and the environmental component of ESG. Further estimations have highlighted a more nuanced evidence in particular with regard to profitability namely: (i) there is a an inverse U-shaped relationship between the governance score of ESG and ROA of firms; (ii) when considering interactions, it comes out that as the firm size increases both environmental and social score are negatively associated with ROA; (iii) when considering non-linearities results show that when governance score is small ROA of firms slightly decreases but as the governance scores increases it eventually increases.

Suggested Citation

  • Carlo Bellavite Pellegrini & Raul Caruso & Rocco Cifone, 2019. "The Impact of ESG Scores on both Firm Profitability and Value in the Automotive Sector (2002-2016)," Working Papers 1004, European Centre of Peace Science, Integration and Cooperation (CESPIC), Catholic University 'Our Lady of Good Counsel'.
    • Handle: RePEc:pea:wpaper:1004
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    Keywords

    ESG; Profitability; ROA; Firm Value; Tobin's Q;
    All these keywords.

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