Do High Ability Managers Choose ESG Projects that Create Shareholder Value? Evidence from Employee Opinions
42 Pages Posted: 24 Jun 2020 Last revised: 13 Apr 2021
George Washington University; George Washington University - Department of Accountancy
Date Written: June 2, 2020
Managers face increasing external pressure to allocate firm resources to ESG efforts—activities frequently perceived as counter to shareholder value incentives. Under such situations, which ESG project to select and how much to invest is not clear. We find evidence that managers who receive higher ratings from employees solve this problem by allocating resources to ESG efforts in a way that enhances shareholder value. Using MSCI ESG Ratings and Glassdoor employee scoring of senior managers as signals, we implement a calendar-time portfolio regression design. We find that the two ratings have little correlation, suggesting they are unrelated signals. More importantly, we find that firms with highly rated managers and high ESG exhibit significantly higher future stock returns than those with low ratings on both or those firms with just high ESG or employee opinions alone. Our results are robust to using firm fixed effect in a panel regression to control for selection. Overall, results highlight the importance of leaders in allocating resources to ESG efforts that improve shareholder value.
Keywords: ESG; CSR; Human Capital; Investment Performance
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