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Estimating the Impact of ESG scores on Firm Value and Cost of Capital: A Quantitative Study Across European Firms

Müller, Claudia LU (2024) BUSN79 20241
Department of Business Administration
Abstract
Title: Estimating the Impact of ESG scores on Firm Value and Cost of Capital - A Quantitative Study Across European Firms
Purpose: The purpose of this paper is to investigate the impact of Environmental, Social, and Governance (ESG) scores on firm value and cost of capital across various market capitalizations, with a focus on small, mid, and large cap companies in the European Union.
Methodology: This study employs panel data analysis through ordinary least squares (OLS) regression model to investigate the impact of ESG on firm value and cost of capital.
Theoretical perspectives: The theoretical framework is based on Stakeholder and Shareholder theory, Agency theory, Legitimacy theory and Signaling theory.
Empirical foundation: The... (More)
Title: Estimating the Impact of ESG scores on Firm Value and Cost of Capital - A Quantitative Study Across European Firms
Purpose: The purpose of this paper is to investigate the impact of Environmental, Social, and Governance (ESG) scores on firm value and cost of capital across various market capitalizations, with a focus on small, mid, and large cap companies in the European Union.
Methodology: This study employs panel data analysis through ordinary least squares (OLS) regression model to investigate the impact of ESG on firm value and cost of capital.
Theoretical perspectives: The theoretical framework is based on Stakeholder and Shareholder theory, Agency theory, Legitimacy theory and Signaling theory.
Empirical foundation: The study utilizes a sample of 1,487 ESG-rated companies from the European Union market, covering the period from 2014 to 2023.
Conclusions: The study finds that higher ESG scores significantly enhance firm value in small-cap firms across all dimensions—environmental, social, and governance. Mid-cap firms experience a significant boost in firm value primarily from the social dimension of ESG, while large-cap firms show no significant impact from ESG scores on firm value. Additionally, higher ESG scores increase the Weighted Average Cost of Capital (WACC) in small-cap firms, suggesting a perception of higher risk or initial costs associated with ESG practices. This effect is reduced for larger firms. The study emphasizes the importance of tailored ESG strategies based on firm size to optimize financial outcomes. (Less)
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author
Müller, Claudia LU
supervisor
organization
course
BUSN79 20241
year
type
H1 - Master's Degree (One Year)
subject
keywords
ESG, Firm Value, Cost of Capital, Firm Size, Market Capitalization
language
English
id
9170005
date added to LUP
2024-08-07 16:30:20
date last changed
2024-08-07 16:30:20
@misc{9170005,
  abstract     = {{Title: Estimating the Impact of ESG scores on Firm Value and Cost of Capital - A Quantitative Study Across European Firms
Purpose: The purpose of this paper is to investigate the impact of Environmental, Social, and Governance (ESG) scores on firm value and cost of capital across various market capitalizations, with a focus on small, mid, and large cap companies in the European Union.
Methodology: This study employs panel data analysis through ordinary least squares (OLS) regression model to investigate the impact of ESG on firm value and cost of capital. 
Theoretical perspectives: The theoretical framework is based on Stakeholder and Shareholder theory, Agency theory, Legitimacy theory and Signaling theory. 
Empirical foundation: The study utilizes a sample of 1,487 ESG-rated companies from the European Union market, covering the period from 2014 to 2023. 
Conclusions: The study finds that higher ESG scores significantly enhance firm value in small-cap firms across all dimensions—environmental, social, and governance. Mid-cap firms experience a significant boost in firm value primarily from the social dimension of ESG, while large-cap firms show no significant impact from ESG scores on firm value. Additionally, higher ESG scores increase the Weighted Average Cost of Capital (WACC) in small-cap firms, suggesting a perception of higher risk or initial costs associated with ESG practices. This effect is reduced for larger firms. The study emphasizes the importance of tailored ESG strategies based on firm size to optimize financial outcomes.}},
  author       = {{Müller, Claudia}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Estimating the Impact of ESG scores on Firm Value and Cost of Capital: A Quantitative Study Across European Firms}},
  year         = {{2024}},
}