ESG performance on the value of family firms: international evidence during Covid-19

Abstract

AbstractThe link between the financial success of family companies during COVID-19 and their environmental, social, and governance (ESG) performance is examined for the first time in this research. We have a natural setting in the COVID-19 era to see if the market rewards family-run firms that integrate social and environmental concerns into their goals during uncertain times. Since they can enhance their image and reputation, which the market values, these companies are likely to pursue broader social objectives, such as environmental improvement (socioemotional wealth perspective); alternatively, managers can act as stewards of the family’s interests by using these initiatives to increase the company’s value (stewardship perspective). However, it is also possible that in this type of companies economic interests prevail over social wellness (“amoral familism”). Therefore, family-owned firms could be reluctant to implement ESG practices unless they yield certain socioemotional benefits, including enhancing or maintaining their reputation in the public eye. In light of the above, we use an international display of the 500 biggest family firms in the world from 2015 to 2021. Taking into account an endogenous relationship between ESG performance and family business value, the study uses generalized moments to construct a dynamic panel (GMM). The primary conclusion is that there is a positive correlation between corporate valuation and ESG performance. Nonetheless, it has been noted that the performance of the companies is negatively impacted during the COVID-19 period. However, for firms with superior ESG performance, this negative impact did not exist over this period, supporting the idea that investors view better ESG performance as a prediction of future good stock performance. The results have a variety of implications. To begin with, this study adds to the body of knowledge on the environmentally friendly and sustainable expansion of family companies by providing recommendations for investors and businesses to better understand the influence of ESG on the profitability of family businesses. Furthermore, managers have to concentrate on enhancing the ESG performance of their organizations as it has the potential to increase value, draw in investments, encourage sustainability, control risks, affect earnings, and interact with the ownership structure. Additionally, managers need to consider how important it is to have a strong ESG performance in order to mitigate the negative effects of external crises like the COVID-19 epidemic. It’s crucial to remember that the precise impact might change based on the sector and other aspects unique to each company.