IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v101y2025ics1059056025003685.html
   My bibliography  Save this article

SDG adoption and firm risk: The impact of ESG performance, investor confidence, and agency cost

Author

Listed:
  • Sharma, Rajat
  • Chawla, Sonia
  • Dagar, Vishal
  • Kagzi, Muneza
  • Rao, Amar

Abstract

This study investigates the nexus between firm-level Sustainable Development Goals (SDG) adoption and firm risk using a unique dataset of National Stock Exchange (NSE) 500 companies from 2019 to 2024. It constructs a novel SDG adoption index to assess this relationship and reveals a noteworthy reduction in firm risk associated with SDG adoption. The results remain robust after a battery of robustness checks, including endogeneity concerns using 2SLS IV and system GMM and sample selection bias through Heckman's two-stage methods. Furthermore, the mechanism test indicates that SDG adoption reduces firm risk by enhancing investor confidence, improving ESG performance, and reducing agency costs. In addition, heterogeneity analyses demonstrate that the impact is more accentuated for enterprises with higher information asymmetry, higher board gender diversity, and non-state ownership. The results carry significant implications for investors, corporations, and policymakers seeking to mitigate risk and foster sustainable practices, particularly within the context of the COVID-19 pandemic and emerging markets.

Suggested Citation

  • Sharma, Rajat & Chawla, Sonia & Dagar, Vishal & Kagzi, Muneza & Rao, Amar, 2025. "SDG adoption and firm risk: The impact of ESG performance, investor confidence, and agency cost," International Review of Economics & Finance, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:reveco:v:101:y:2025:i:c:s1059056025003685
    DOI: 10.1016/j.iref.2025.104205
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056025003685
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2025.104205?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Sustainable development goals; ESG performance; Firm risk; Investor confidence; Information asymmetry; Board gender diversity;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:101:y:2025:i:c:s1059056025003685. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.