Firms' potential for economic sustainability and firm value: The moderating role of blockholders

Abstract

Firms that strive to innovate (i.e., firms that invest in research and development—R&D) have high potential for economic sustainability due to the possibility of generating new platforms of growth and future revenue. However, it is little understood whether financial markets incorporate (if at all) information on firms' potential for economic sustainability. After all, firms' information on R&D investments is very opaque. This poses a challenge to investors to incorporate into firm value any economic sustainability emanating from such information. We investigate whether blockholders, owners with at least a 5% shareholding in a firm, help reflect in firm value the firms' potential for economic sustainability. We find that active blockholders, rather than passive blockholders, help incorporate in firm value the potential for economic sustainability. Thus, active blockholders help mitigate agency problems in firms and help financial markets digest firms' potential for economic sustainability.

Building a Hierarchical Enablers Framework for Service Business Model Innovation for Sustainable Performance: Evidence from Ghana’s Electricity Sector

“…Firm value creation can be achieved by incorporating the economic, governance, social, ethical, and environmental dimensions of sustainability performance into strategies [21]. As a result, companies that prioritize innovation and invest in R&D have greater potential for achieving social, environmental, and economic sustainability [26].…”