Valuing ESG: How financial markets respond to corporate sustainability
利用12国大型上市公司数据，发现ESG评级与企业价值呈三次S形关系，并揭示增长期权和利益相关者影响能力是驱动机制，制度质量等国家背景起调节作用。
This study explores how financial markets value corporate sustainability, using a comprehensive dataset of the largest publicly listed firms across 12 countries. Diverging from prior research that assumes a linear or quadratic relationship between ESG performance and firm value, we uncover a cubic response function, characterised by a horizontal-S-shaped effect. Firm value initially increases with ESG ratings up to a critical threshold, then declines as firms face rising costs and diminishing returns, before rising again once ESG ratings exceed a second threshold. We attribute this nonlinear dynamic to two key mechanisms: growth options and stakeholder influence capacity, which interact at different stages of ESG performance. Furthermore, our analysis highlights the moderating role of country-level institutional quality and environmental sustainability, demonstrating that national contexts significantly shape market responses to ESG ratings. By leveraging the Gaussian Copula approach to address endogeneity concerns, we ensure robust and reliable findings. This study advances the international business literature by offering a theoretical framework to explain cross-country variations in how financial markets price sustainability-linked assets. Our findings underscore the critical role of institutional factors in shaping investor sentiment and corporate strategies in a sustainability-focus global economy. These insights are invaluable for investors, policymakers, and corporate leaders navigating the evolving landscape of ESG-driven finance. • This study explores how financial markets value corporate sustainability using data from 12 countries. • It proposes and empirically validate a cubic S-shaped relationship between ESG ratings and firm value. • The cubic relationship is driven by growth options and stakeholder influence capacity. • National contexts shape market responses to ESG ratings, moderated by institutional quality and sustainability. • This research clarifies ESG literature and offers insights for investors, policymakers, and corporate leaders.