ESG and Investment Efficiency: The Role of Marketing Capability

Abstract

This study examines whether and how corporate environmental, social, and governance (ESG) performance is associated with firms’ investment efficiency while considering the role of firms’ marketing capability. Using a sample of U.S. firms from 1991 to 2019, we find robust evidence that firms with better marketing capabilities (MC) are more likely to engage in ESG activities and receive higher ESG scores. In addition, ESG engagement by firms with better marketing capabilities reduces investment inefficiency. Moreover, we find that the effect of MC-fitted ESG is more prominent when economic policy uncertainty is low or agency costs are low. The results are also driven by social or environmental dimensions. Our empirical evidence extends the understanding of firms’ decisions cross-functionally.