Valuing ESG: How market values corporate sustainability engagement

Le, Chau, Le, Anh and Vo, Duc (2025) Valuing ESG: How market values corporate sustainability engagement. International Business Review, 34 (3). ISSN 0969-5931

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Abstract

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.

Item Type:	Article
Uncontrolled Keywords:	esg performance,firm value,corporate sustainability,institutional quality,international business,jel classifications,g32,g34,m21,l25,sdg 12 - responsible consumption and production ,/dk/atira/pure/sustainabledevelopmentgoals/responsible_consumption_and_production
Faculty \ School:	Faculty of Social Sciences > Norwich Business School
UEA Research Groups:	Faculty of Science > Research Groups > Statistics
Related URLs:	http://www.scopus.com/inward/record.url?...
Depositing User:	LivePure Connector
Date Deposited:	23 Jan 2026 11:30
Last Modified:	29 Jan 2026 10:32
URI:	https://ueaeprints.uea.ac.uk/id/eprint/101690
DOI:	10.1016/j.ibusrev.2025.102418

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