Price Impact of ESG Scores: Evidence from Korean Retail Firms

Abstract

Purpose – This paper examines the value relevance of socially responsible activities in the Korean retail firms. Recent studies predict positive relationships between socially responsible activities and the value of corporation. Research design, data, and methodology – We use the environmental score, social score, governance score and the sum of these three scores to represent a fim’s effectiveness of socially responsible activities. These scores are published by the Korean Corporate Governance Service. This paper adopts a share price valuation model to evaluate the effect of socially responsible activities on a firm’s share price, which controls for the book value of assets and current earnings. The ordinary least square method is employed to examine the relationship. The sample of Korea retail firms is examined from 2011 to 2016. We also conduct sub-sample analysis based on the categorization of chaebol affiliates and non-chaebol affiliates. Results – The entire sample analysis finds neither negatively nor positively significant relationship between socially responsible activities and the value of a corporation. In contrast, our examinations find a significantly positive valuation effect of social score within non-chaebol retail firms. Conclusions – The results weakly support the positive valuation effect of socially responsible activities. The results are consistent with recent studies that highlight heterogeneous effects of socially responsible activities on corporate policies and valuation.