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ESG: A panacea for market power?

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  • Bond, Philip
  • Levit, Doron

Abstract

We study the equilibrium effects of the “S” dimension of ESG under imperfect competition. ESG policies are pledges made by firms that constrain managers to treat their stakeholders better than market conditions alone dictate. Moderate policies limit market power and prompt managers to be more competitive; aggressive polices backfire, both for adopting firms and intended beneficiaries. In contrast to the “shareholder primacy” paradigm, competition in ESG policies under the “stakeholder capitalism” paradigm is a panacea for market power, delivering the first-best outcome in equilibrium. We discuss drivers behind the recent rise in ESG, ESG-linked compensation, and disclosure practices.

Suggested Citation

  • Bond, Philip & Levit, Doron, 2025. "ESG: A panacea for market power?," Journal of Financial Economics, Elsevier, vol. 165(C).
    • Handle: RePEc:eee:jfinec:v:165:y:2025:i:c:s0304405x24002149
    DOI: 10.1016/j.jfineco.2024.103991
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    More about this item

    Keywords

    ESG; Shareholder primacy; Stakeholder capitalism; Corporate social responsibility; Corporate governance; Market power;
    All these keywords.

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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