Corporate Social Responsibility and Market Efficiency: Evidence from ESG and Misvaluation Measures

65 Pages Posted: 21 Apr 2020 Last revised: 5 Oct 2021

See all articles by Yannik Bofinger

Yannik Bofinger

Justus-Liebig-University Giessen

Kim J. Heyden

Justus Liebig University Giessen

Björn Rock

Justus-Liebig-University Giessen

Date Written: August 19, 2020

Abstract

We study the impact of corporate social responsibility (CSR) on firm misvaluation in the US. Our results indicate that a firm's Environmental, Social and Governance (ESG) profile significantly affects valuation: an improvement of a firm's CSR leads to a higher ratio of actual to true firm value. Analyzing the relation between ESG and misvaluation separately, we find that ESG expands existing overvaluation whereas it reduces undervalued firms' deviation from the true value. We argue that both valuation effects are attributable to the worldwide trend of sustainable investing. Further analyses reveal a moderating role of market sentiment towards sustainability in the ESG-misvaluation relationship. Our findings suggest that firms‘ CSR is indeed perceived as valuable by shareholders and supports stakeholder theory's view in considering CSR as beneficial.

Keywords: Corporate social responsibility; ESG; misvaluation; sustainable investing; \\ market efficiency; sentiment

JEL Classification: G14, G32, M14, Q5

Suggested Citation

Bofinger, Yannik and Heyden, Kim J. and Rock, Björn, Corporate Social Responsibility and Market Efficiency: Evidence from ESG and Misvaluation Measures (August 19, 2020). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3571211 or http://dx.doi.org/10.2139/ssrn.3571211

Yannik Bofinger (Contact Author)

Justus-Liebig-University Giessen ( email )

Licher Str. 64
Giessen, 35394
Germany

Kim J. Heyden

Justus Liebig University Giessen ( email )

Licher Str. 64
Giessen, 35394
Germany

Björn Rock

Justus-Liebig-University Giessen ( email )

Licher Str. 64
Giessen, 35394
Germany

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