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Abstract
Drawing on institutional and transaction cost theory and the resource-based view of CSR, I posit that CSR performance across global emerging market companies is positively related to firm valuation. Using an unbalanced panel data approach for a sample with 3,800 firm-year observations representing 657 individual firms from 20 different countries that are classified as emerging markets according to the MSCI EM index during 2010-2016, I find that CSR performance, proxied by the average of the environmental and social pillar scores of the Thomson Reuters EIKON ESG rating database, positively relates to firm valuation, proxied by one-year ahead Tobin’s q (TOBQ). Specifically, a one-standard-deviation increase in normalised CSR performance is – on average – associated with a 0.042-point increase in TOBQ. Compared to the mean value of 1.661 for TOBQ across the sample, this increase constitutes an economically significant share of around 2.5% of that value. This value-enhancing effect of CSR is driven by companies in Asia, while it is absent for companies located in EMEA and more pronounced for companies of the Americas. Additional analyses further reveal that while overall Thomson Reuters corporate governance score performance is positively related to firm valuation, the way in which these scores are constructed seems to fail to reflect important differences in the governance environment of emerging market companies compared to their developed market counterparts. Moreover, the number of sell-side analysts covering the stock of these companies is (next to CSR) positively related to firm valuation but has a mitigating effect on the positive relation between CSR performance and firm valuation.
