The Value-Relevance of ESG Scores:A Fair Value Hierarchy Perspective with Evidence from European Banks

41 Pages Posted: 21 Feb 2024

See all articles by Valerio Potì

Valerio Potì

University College Dublin

Federica Miglietta

Università degli Studi di Bari “Aldo Moro” (UNIBA) - Department of Business Studies and Private Law

Giuseppe Di Martino

University of Bari

Abstract

Using hand-collected accounting data on 154 European banks, we investigate the impact of ESG scores on the value-relevance of the fair value hierarchy (FVH) of financial instruments held on their balance sheets. Our findings are multi-faceted. Banks that possess an ESG score are valued at a premium on book value and the presence of the ESG score is associated with lower (higher) value-relevance of Level 1 (Level 2 and 3) reported fair value. The value relevance of Level 2 and 3 FVH levels, however, decreases in the ESG score. These findings imply that stock market investors either do not treat the ESG score as a reliable measure of ESG performance or, embracing the “overinvestment view” rather than the “risk mitigation view” of Corporate Social Responsibility, do not associate positive ESG performance to greater corporate transparency and trustworthiness.

Keywords: Banks, CSR, ESG, fair value hierarchy, Value Relevance

Suggested Citation

Potì, Valerio and Miglietta, Federica and Di Martino, Giuseppe, The Value-Relevance of ESG Scores:A Fair Value Hierarchy Perspective with Evidence from European Banks. Available at SSRN: https://ssrn.com/abstract=4734196 or http://dx.doi.org/10.2139/ssrn.4734196

Valerio Potì (Contact Author)

University College Dublin ( email )

M. Smurfit School of Business
Carysfort Avenue, Blackrock
Dublin, Co Dublin
Ireland

HOME PAGE: http://https://people.ucd.ie/valerio.poti

Federica Miglietta

Università degli Studi di Bari “Aldo Moro” (UNIBA) - Department of Business Studies and Private Law ( email )

via Camillo Rosalba, 53
Bari, 70124
Italy

Giuseppe Di Martino

University of Bari ( email )

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