Investigating the role of sensitive industries and ESG performance in enhancing Corporate Financial Performance

: empirical analysis from the United States

Abstract

This study explores the correlation between ESG performance and financial performance in US corporations. It examines the relationship between overall ESG performance and specific components (environmental, social, and governance). Financial indicators like Tobin's Q, ROA, and ROE are analyzed. Additionally, the study investigates the connection between industry sensitivity and ESG scores. An analysis based on recent data extracted from Compustat and Thomson Reuters databases of a time period of 6 years from 2016 to 2021 has been carried out. Data from a total of 2759 companies, both in the sensitive and non-sensitive sectors, were analyzed using multivariate regressions. Tobin's Q results demonstrate a positive relationship between ESG score, Environmental Score, Social Score, Governance Score, and Corporate Financial Performance. However, the results using the ROA measure do not align with previous studies, and the low coefficient prevents any conclusive evidence on the relationship with Corporate Financial Performance. Regarding ROE, the results are mixed. No significant relationship was found between ESG score and Governance score with ROE. However, the Environmental Score shows a significant positive relationship with ROE, while the Social score suggests a potential positive relationship. Furthermore, statistically significant positive relationships were observed between being in a sensitive industry and the ESG score, Social score, and Governance score. However, no clear association was found between industry sensitivity and the Environmental score.

Date of Award	5 Jul 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Fátima Shuwaikh (Supervisor)