Impact of ESG Factors on Firm Value in Korea

This paper examines the relations between environmental, social, and governance(ESG) practices and firm value using Korean Listed firms over the 2011-2014 periods. This paper hypothesizes that environmental, social, and corporate governance (ESG) practices have a positive effect on firm value and negative effect on firm risk. This paper also hypothesizes that environmental, social, and corporate governance(ESG) practices have a significant impact on firm’s credit rating. This research finds that total ESG score has a positive impact on firm value measured by Tobin’s Q. Furthermore, total ESG score has a strong negative impact on firm risk measured by abnormal stock return. In addition, this paper also shows that with high ESG score shows a better credit rating, supporting the close relation between ESG practices and cost of debt.