ESG and Firm Value: The Moderating Effects of Corporate Transparency and Institutional Environment

Using a panel sample of firms across 53 countries and regions, we empirically explore the association between ESG performance and firm value and how it varies in different information and institutional environments. We find that ESG performance improves firm value across countries and regions. Moreover, both corporate transparency and developed markets positively moderate the relationship between ESG performance and firm value. Notably, we provide evidence that the positive moderating effect of transparency only exists in the low divergence of environmental, social, and governance performance and high accounting conservatism. We also find that corporate transparency and agency costs are mediating mechanisms through which ESG signals improve firm value. Based on signalling theory, our analysis suggests that ESG performance is an effective signal for investors, and corporate transparency and developed markets reduce the signalling costs and processing costs of ESG signals.