Does ESG reputational risk affect the efficiency and speed of adjustment of corporate investment?

Dimitrios Gounopoulos; Dimitrios Konstantios; Ioannis Chasiotis; Vasilios-Christos  Naoum; Victoria Patsika

doi:10.1111/eufm.12470

Does ESG reputational risk affect the efficiency and speed of adjustment of corporate investment?

Dimitrios Gounopoulos, Dimitrios Konstantios, Ioannis Chasiotis, Vasilios-Christos Naoum, Victoria Patsika

Research output: Contribution to journal › Article › peer-review

24 Citations (SciVal)

Abstract

This study explores the relationship between environmental, social, and governance (ESG) reputational risk and investment efficiency. We provide evidence that ESG reputational risk relates to higher corporate suboptimal investment (underinvestment) and a lower speed of adjustment back to the optimal investment level. Our findings hold for parametric and nonparametric estimations of underinvestment and are robust to several techniques that address endogeneity and self-selection. Overall, our study highlights the important role of ESG reputational risk in determining corporate investment efficiency.

Original language	English
Number of pages	40
Journal	European Financial Management
Early online date	22 Nov 2023
DOIs	https://doi.org/10.1111/eufm.12470
Publication status	Published - 22 Nov 2023

Data Availability Statement

Data are available upon reasonable request. The data that support the findings of this study arepublicly available from the sources noted in the text.

Acknowledgements

The authors would like to express their deepest gratitude to John Doukas (the editor), three anonymous reviewers, Douglas Cummings, Kyriakos Drivas, Claire Economidou, Emmanuel Tsiritakis, Maria Giaka, Stavros Konstantios, Hisham Farag,Sofia Johan, Reynolds Holdings, Marcin Kacperczyk, Lukasz Pomorski, seminar participants from the University of Cardiff,the University of Piraeus, and the University of York and conference participants at the Financial Management Association(FMA), the Sustainability, Climate Change and Financial Innovation Workshop in the premises of the University of Birmingham in Dubai and the Financial Economics Meeting (FEM 2022) for their helpful comments and suggestions.

Keywords

ESG reputational risk
agency costs
capital investment
financial constraints
overinvestment
speed of adjustment
underinvestment

ASJC Scopus subject areas

Economics, Econometrics and Finance(all)
Accounting

Access to Document

10.1111/eufm.12470Licence: CC BY

Cite this

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title = "Does ESG reputational risk affect the efficiency and speed of adjustment of corporate investment?",

abstract = "This study explores the relationship between environmental, social, and governance (ESG) reputational risk and investment efficiency. We provide evidence that ESG reputational risk relates to higher corporate suboptimal investment (underinvestment) and a lower speed of adjustment back to the optimal investment level. Our findings hold for parametric and nonparametric estimations of underinvestment and are robust to several techniques that address endogeneity and self-selection. Overall, our study highlights the important role of ESG reputational risk in determining corporate investment efficiency.",

keywords = "ESG reputational risk, agency costs, capital investment, financial constraints, overinvestment, speed of adjustment, underinvestment",

author = "Dimitrios Gounopoulos and Dimitrios Konstantios and Ioannis Chasiotis and Vasilios-Christos Naoum and Victoria Patsika",

year = "2023",

month = nov,

day = "22",

doi = "10.1111/eufm.12470",

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journal = "European Financial Management",