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The impact of ESG profile on firm's valuation in emerging markets

Author

Listed:
  • Birjees Rahat

    (Excelia Group | La Rochelle Business School)

  • Pascal Nguyen

    (MRM - Montpellier Research in Management - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - UM2 - Université Montpellier 2 - Sciences et Techniques - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School)

Abstract

Environmental, Social and Governance (ESG) factors are a critical input in emerging markets for managing risks, attracting capital, being competitive, and complying with evolving regulations. The firms prioritizing ESG are likely to drive innovation and enhance long-term value creation, making them more resilient in these dynamic markets. Therefore, a plausible link should exist between ESG and firm valuation. In this paper, we attempt to validate this link by evaluating the impact of ESG scores and ESG controversies on Tobin's Q and enterprise value to sales (EV/S). Our assessment is based on a comprehensive sample of non-financial firms across sixteen emerging markets for eleven years. Based on fixed effects panel estimations we demonstrate, in general, a positive relationship between firm value and ESG profiles. The fundamental valuation (Tobin's Q) is influenced by the lagged ESG score, while for the multiplier (EV/S), we find the current ESG score to be relevant. For the RepRisk index, we observe that ESG controversies negatively impact firm value for both fundamental and multiplier proxies. Our findings hold considerable implications for the evolving landscape of ESG compliance, particularly for firms and investors in emerging markets, as well as for the broader financial system.

Suggested Citation

  • Birjees Rahat & Pascal Nguyen, 2024. "The impact of ESG profile on firm's valuation in emerging markets," Post-Print hal-04729376, HAL.
    • Handle: RePEc:hal:journl:hal-04729376
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    Citations

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    Cited by:

    1. Wang, Pengmian & Liang, Shuguang, 2025. "Enhancement of audit quality and optimization of risk management: Dual engines for corporate value growth analysis," International Review of Economics & Finance, Elsevier, vol. 103(C).
    2. Chen, Shaowei & Wu, Zhiliang, 2025. "Corporate ESG performance and stock pricing efficiency," The North American Journal of Economics and Finance, Elsevier, vol. 79(C).
    3. Shuyi He & Shihong Zeng, 2025. "The Impact of Carbon Disclosure on Business Valuation," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 15(2), pages 1-2.
    4. Ali, Shoaib & Al-Nassar, Nassar S. & Sindhu, Muzammal Ilyas & Naveed, Muhammad, 2025. "Sustainable synergy: Static and dynamic nexus between ESG and BRICS equity markets," Research in International Business and Finance, Elsevier, vol. 74(C).
    5. Dou, Jie & Mirza, Nawazish & Umar, Muhammad & Horobet, Alexandra, 2025. "ESG uncertainties and valuation implications: Evidence from the EU banking sector," Research in International Business and Finance, Elsevier, vol. 76(C).
    6. Sun, Tingting & Mirza, Nawazish & Umar, Muhammad & Ktaish, Farah, 2024. "When interest rates rise, ESG is still relevant – The case of banking firms," Finance Research Letters, Elsevier, vol. 69(PB).
    7. Huang, Pai-Chin & Mirza, Nawazish & Umar, Muhammad & Horobet, Alexandra, 2025. "Impact of environmental double materiality on firm valuation: Evidence from the EU," International Review of Economics & Finance, Elsevier, vol. 103(C).

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