Do high-ability managers choose ESG projects that create shareholder value? Evidence from employee opinions

Forthcoming, Review of Accounting Studies

43 Pages Posted: 24 Jun 2020 Last revised: 22 Jun 2022

See all articles by Kyle Welch

Kyle Welch

George Washington University; George Washington University - Department of Accountancy

Aaron Yoon

Northwestern University - Department of Accounting Information & Management

Date Written: June 2, 2020

Abstract

Firm managers are facing increasing external pressure to allocate firm resources to environmental, social, and governance (ESG) efforts. Given that ESG activities are frequently perceived as in opposition to shareholder value, however, managers may find it difficult to decide which projects they should select and how much they should invest. Using MSCI ESG Ratings and Glassdoor employee ratings of senior managers as signals for firm ESG efforts and high managerial ability, we find evidence that high-ability managers allocate resources to ESG in a way that enhances shareholder value. Specifically, we implement a calendar-time portfolio regression design and find that firms with highly rated managers and high ESG exhibit significantly higher future stock returns than firms with low ratings on both. The results are robust to using different fixed effect structures as well as controlling for more covariates in a panel regression. Overall the results highlight the importance of senior managers in allocating resources to ESG efforts.

Keywords: Leaders; Senior Managers; Sustainability; ESG; CSR; Investment Performance

Suggested Citation

Welch, Kyle and Yoon, Aaron, Do high-ability managers choose ESG projects that create shareholder value? Evidence from employee opinions (June 2, 2020). Forthcoming, Review of Accounting Studies, Available at SSRN: https://ssrn.com/abstract=3616486 or http://dx.doi.org/10.2139/ssrn.3616486

Kyle Welch

George Washington University ( email )

School of Business and Public Management
Washington, DC 20052
United States

HOME PAGE: http://https://business.gwu.edu/kyle-welch

George Washington University - Department of Accountancy ( email )

School of Business and Public Management
Washington, DC 20052
United States

HOME PAGE: http://https://business.gwu.edu/kyle-welch

Aaron Yoon (Contact Author)

Northwestern University - Department of Accounting Information & Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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