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The value of diversification: ESG and investment in controversial industries

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  • Iskenderoglu, Cansu

Abstract

This paper investigates the impact of Environmental, Social, and Governance (ESG) disclosure on the value of diversification and how investment in controversial industries (sin and energy) by conglomerate firms affects their ESG scores and valuations. I find that conglomerates with higher ESG scores have higher diversification values. Following an investment in controversial industries, conglomerate firms experience a significant decline in their ESG scores and valuations. Moreover, the negative impact of investments in con-troversial industries on the value of diversification is mitigated by higher ESG disclosure. After the Paris Agreement, in high ESG awareness period, excess values of conglomerates with higher ESG scores increase, indicating a causal effect.

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  • Iskenderoglu, Cansu, 2025. "The value of diversification: ESG and investment in controversial industries," Finance Research Letters, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:finlet:v:76:y:2025:i:c:s154461232500220x
    DOI: 10.1016/j.frl.2025.106956
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    More about this item

    Keywords

    Environmental; social; governance (ESG); Corporate social responsibility (CSR); Diversi- fication; diversification discount; Sin industries; Energy sector;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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