Esg, growth options and riska value creation approach

Resumo

This doctoral dissertation explores the mechanisms through which the so-called corporate strategy of ESG (the English acronym of Environmental, Social & Governance) can affect the value creation process within companies. Academic literature has made major strides in our knowledge of the characteristics, drivers and outcomes to emerge from this strategy, not only from the economics and business perspectives but also from more specific fields of knowledge such as marketing, human resources or finance. Yet despite all of this, we still lack a clear consensus concerning the actual value created by this strategy for the firm and the underlying mechanisms through which it can be a source of value. This dissertation explores these mechanisms, from both a theoretical and an empirical perspective and, in particular, examines their influence on a firm s risk and how this strategy interacts with other key pieces such as growth opportunities and business diversification strategy. Chapter 1 explains the state of the art by reviewing the literature and by setting out the theoretical base. In Chapter 2, we present our research model and develop the hypotheses. Our hypotheses are tested empirically on a sample of publicly listed U.S. companies. We draw on different econometric techniques to test the robustness of our empirical findings and we control for potential endogeneity. Chapter 3 empirically tests the hypotheses about the trinomial of ESG strategy, growth options value and firm value. Our empirical findings support the predicted inverted U-shaped relationship between ESG engagement and growth opportunities value. We find evidence that such a non-linear relation remains in the environmental and social pillars, but that the governance pillar has no statistically significant impact on growth opportunities value. In addition, and as regards the effect on a firm s total value.our results reveal that ESG strategy and growth options display a negative interactive effect, which supports the notion that these strategies are substitutive in mitigating a firm s risk since their coexistence might lead to overlaps and impair a firm s value. In Chapter 4, we conduct the empirical analyses of the hypotheses about the interrelationship between a firm s ESG engagement and business diversification, firm risk and firm value. Results are also supportive for our hypothesis that corporate diversification and ESG engagement mitigate two different components of a firm s risk: corporate diversification strategy reduces a firm ;s idiosyncratic risk, while ESG strategy reduces systematic risk. However, we find no support for the interaction of the two in terms of reducing a firm s total risk, such that there is no confirmation for the hypothesis of firm risk being a mediator in the relationship of these two strategies and a firm s risk. Contrary to our expectations, this result encourages us to identify alternative causal channels (other than risk) which may drive synergies and complementarities between these strategies. In particular, our study reveals that ESG strategy improves the value impact of corporate diversification to a greater extent in firms with stronger monitoring mechanisms (e.g. debt and analyst coverage) and lower business relatedness. The main contribution of this research involves shedding further light on the myriad channels through which a firm s ESG strategy may impact a firm s value, specifically its association with a firm's growth opportunities, a firm's risk and corporate diversification. This study thus first adds to the literature on the value of a firm s ESG strategy. Second, it helps to extend the real options approach to strategic analysis. Third, it contributes to studies exploring the mechanisms of corporate risk management and, finally, it adds to the debate on the value of corporate diversification and the possible moderating and mediating variables involved.