ESG and Managerial Agency Problems

Abstract

Criticism of conventional shareholder supremacy triggered urges for incorporating the stakeholder perspective and the Environmental(E), Social(S) and Governance(G) issues in managerial decisions. However, the corporations in Korea still lack proper corporate governance to protect shareholder benefits from managerial agency problems. In that case, adopting vague, not readily assessable objectives may lead to a lack of managerial accountability and exacerbate the agency problem. We find that Tobin’s Q of firms without good governance declined when their environmental and social ratings improved, suggesting “E,” “S,” and “G” are not independent. Corporations should prioritize establishing