Corporate Scandals and the Reliability of ESG Assessments: Evidence from an International Sample

Review of Managerial Science, 2019, 13, 483-511.

47 Pages Posted: 31 Jan 2018 Last revised: 27 Jul 2020

Date Written: September 26, 2017

Abstract

This paper studies the reliability of environmental, social, and governance (ESG) assessments in the case of corporate scandals. Reliable disclosures on ESG assessments may reduce information asymmetries when it comes to due diligence, for instance. We use the press release of corporate scandals, which are seen as being unexpected events, and analyze ESG assessments before, during, and after the event year. We find a significant decline in retrospective controversy indicators during the period in which the scandals are released. Subsequent to the scandals, we document a rebound of these indicators. The assessments of forward-looking indicators indicate slightly significant increases during the scandal period. Moreover, our findings show that aggregated ESG assessments consisting of both retrospective and forward-looking indicators are useless when it comes to predicting corporate scandals. Therefore, the managerial implication of this paper recommends educating managers and investors upon how to obtain a comprehensive vision of the corporate social responsibility of a firm based on single ESG assessment indicators.

Keywords: Corporate social responsibility, ESG rating, CSR scandals, ESG reliability

JEL Classification: G39, G14

Suggested Citation

Utz, Sebastian, Corporate Scandals and the Reliability of ESG Assessments: Evidence from an International Sample (September 26, 2017). Review of Managerial Science, 2019, 13, 483-511., Available at SSRN: https://ssrn.com/abstract=3108306

Sebastian Utz (Contact Author)

University Augsburg ( email )

Universitaetsstr. 12a
Augsburg, 86159
Germany

HOME PAGE: http://https://www.uni-augsburg.de/de/fakultaet/wiwi/prof/bwl/utz/team/utzp/

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