Firm Value in Commonly Uncertain Times: The Divergent Effects of Corporate Governance and CSR

Economic policy uncertainty, stakeholder engagement, and environmental, social, and governance practices: The moderating effect of competition

“…For example, recently, using a cross‐country evidence, Rjiba, Jahmane, and Abid (2020) have shown that the CSR engagement mitigates the negative impact of EPU on firm performance. Consistent with the view that investing in CSR activities serve as an insurance, Borghesi et al (2019) document that socially responsible firms preserve value during periods of high uncertainty. Ongsakul, Jiraporn, and Treepongkaruna (2019) provide evidence for the insurance‐like function of CSR engagement by examining the effect of managerial ownership on CSR under uncertainty.…”

“…On the other hand, many papers demonstrate that there is a positive relationship between firm value and CSR engagement (Albuquerque et al, 2019; Borghesi et al, 2019; Ferrell et al, 2016; Lee et al, 2018; Lee, Cin, & Lee, 2016; Li et al, 2018). Also, environmental responsibility increases a firm's performance measured by profitability (Javeed et al, 2020; Lee, Cin, & Lee, 2016).…”

“…Researchers mostly focus on the relationship between the level of ESG practices and corporate policies. For instance, studies mainly focus on how the firm's ESG engagement affects the firm risk (Albuquerque, Koskinen, & Zhang, 2019; Benlemlih, Shaukat, Qiu, & Trojanowski, 2018; Bouslah, Kryzanowski, & M'Zali, 2013; Cai, Cui, & Jo, 2016; Sassen, Hinze, & Hardeck, 2016), firm value (Borghesi, Chang, & Li, 2019; Ferrell, Liang, & Renneboog, 2016; Jo & Harjoto, 2011; Lee, Byun, & Park, 2018; Li, Gong, Zhang, & Koh, 2018), firm performance (Javeed, Latief, & Lefen, 2020; Lee, Ni, & Ratti, 2016), the cost of debt (Eliwa, Aboud, & Saleh, 2019; Erragragui, 2018), or cost of equity (Gupta, Raman, & Shang, 2018). Most of the studies focus on how the environmental and social responsibility influences the firm level variables, such as firm value, performance, firm risk, cost of debt, or equity.…”

“…There is limited research on how the macroeconomic conditions impact firm's ESG engagement. Although, some studies document the moderating effect of economic conditions and uncertainty on the link between the corporate social responsibility and firm value (Borghesi et al, 2019; Lee, Singal, & Kang, 2013), the direct effect of EPU on ESG engagement has not been analyzed. With this research, we aim to fill this gap by investigating the relationship between a firm's ESG engagement and uncertainty in the economy.…”

“…Hence, to reduce their cost of debt, managers may prefer to increase their ESG engagement during periods of high uncertainty. Finally, managers may increase corporate ESG initiatives since these activities serve as insurance during periods of high uncertainty (Borghesi et al, 2019). In fact, the positive relation between the firm value and socially responsibility practices is enhanced when uncertainty in the economy is high (Borghesi et al, 2019), which may encourage managers to engage in ESG practices.…”