Value relevance of ESG: Is ESG performance value relevant for stock prices in Europe?
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This study investigates the value relevance of environmental, social and governance (ESG) performance for stock prices in Europe. The analysis is conducted using the Ohlson price model, which allows us to examine the association between ESG and stock price, where stock price is a function of financial and non-financial information. We apply a data panel of 5354 firm-year observations during the period 2011 – 2017 collected from the Thomson Reuters Eikon Database. The sample consists of 791 companies in member countries of the EU and EFTA. Our results indicate that ESG performance is value relevant for stock prices in Europe. This is consistent with previous research. We also find that board gender diversity is positively associated with ESG and stock prices. However, when analyzing the individual ESG scores, the governance pillar is not significant. Furthermore, our results suggest that the association between high ESG score and stock prices is stronger among companies operating in environmentally sensitive industries. Overall, the study is in line with the stakeholder theory as ESG score has a positive and significant effect on stock price while providing relevant and valuable information regarding stock prices in Europe. Our study is motivated by the increasing discussion of sustainability world-wide. We aim to provide insight on how ESG score is reflected in stock prices in Europe and contribute with relevant information on sustainable investments for managers, investors and stakeholders.
Master i økonomi og administrasjon