ESG Controversies and Firm Value in Times of Crisis: The Effects of Contextual Factors

The main objective of this study is to investigate the factors driving the varying impact of ESG controversies on firm value. We focus on stakeholder expectations as a key mechanism and examine the relationship between ESG controversies and firm value in the challenging post‐COVID years to explore whether stakeholders expect CSR practices from companies and the conditions under which these expectations become more pronounced. Using MSCI ESG controversy scores from a global sample of 832 companies, we perform a panel regression analysis to explore this relationship. We also account for various contextual factors, including firm size, ESG performance, industry, geographic location, and the nature and severity of the issue. The findings indicate a positive direct relationship between ESG controversies and firm value during this period. However, firm size and ESG performance moderate and alter the direction of the relationship. Additional variations are observed across industry, geography, and the nature and severity of the controversies. This study contributes to the literature by examining ESG controversies during challenging times where stakeholder priorities often shift. It focuses on stakeholder expectations and applies expectancy violations theory to reveal the conditions under which stakeholder responses to ESG controversies become more salient. The results deepen our understanding of the factors leading to varying effects of ESG controversies on firm value. The study also highlights the need for managers to integrate CSR into corporate strategies and for policymakers to work towards a more harmonized regulatory framework and identify gaps in stakeholder actions to improve regulatory measures.