The ESG Impact on Companies’ Value and Cost of Capital
DOI:
https://doi.org/10.51341/cgg.v25i2.2802Keywords:
ESG, Value, Cost of capital, Country risk, BrazilAbstract
Objective: This study aims to verify whether the adoption of environmental, social and governance (ESG) practices - by companies - creates more value and reduces their cost of capital.
Method: The hypotheses are verified using descriptive statistics, correlation analysis and regression models with panel data.
Results: The positive relationship between the ESG score and the company's value is confirmed. However, contrary to expectations, it turns out that the improvement in ESG scores also increases the companies' cost of capital.
Originality/Relevance: This study stands out for analyzing not only the relationship between the adoption of ESG practices and the creation of market value, but also for verifying whether this fact implies a reduction in the cost of capital of these companies.
Theoretical/methodological contributions: Use of different metrics to calculate the cost of equity, measure the cost of capital through two country risk indices, and manually collect data to calculate the beta.
Social contributions/to management: The practical implication of this research refers to the need for companies to continue analyzing the financial impacts of investments made in ESG actions - in the long term. In addition, corporate and public policy makers can enhance the regulatory frameworks of companies and government in incorporating ESG into investment activities – for value creation – and financing – to reduce institutions' cost of capital.
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