The Impact of Environmental, Social and Governance (ESG) Standards on the Value of Cash Holdings: Evidence from Canadian Firms

24 Pages Posted: 16 Jan 2014 Last revised: 21 Jan 2015

Date Written: January 15, 2014

Abstract

We investigate the relationship between Environmental, Social and Governance (ESG) practices and firm value by comparing the market value of an extra dollar of cash for non-financial publicly traded Canadian firms with high and low ESG ratings, as measured by the Sustainalytics responsible investment research firm for the period between 2009 and 2012. Our results show that an extra dollar of cash is valued at $1.13 for firms in the top quartile of the ranking, at par for companies at the bottom quartile, and at $1.07 for an average ESG firm. We also show evidence that financial slack has value when future investment opportunities are expected and the cost and availability of capital is uncertain.

Keywords: Environmental, Social and Governance (ESG) standards, cash holdings, firm value, Principles for Responsible Investment (PRI)

Suggested Citation

Perez de Toledo, Eloisa and Bocatto, Evandro, The Impact of Environmental, Social and Governance (ESG) Standards on the Value of Cash Holdings: Evidence from Canadian Firms (January 15, 2014). 2014 Canadian Academic Accounting Association (CAAA) Annual Conference, Available at SSRN: https://ssrn.com/abstract=2379895 or http://dx.doi.org/10.2139/ssrn.2379895

Eloisa Perez de Toledo (Contact Author)

MacEwan University ( email )

Rm 5-225K, 10700 104 Avenue
Edmonton, Alberta T5J 2P2
Canada
17806333342 (Phone)

Evandro Bocatto

MacEwan University ( email )

Rm 5-252E, 10700 1014 Avenue
Edmonton, Alberta T5R $s2
Canada

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