ESG Scores and Firm Productivity: Evidence from South Korea

doi:10.15266/KEREA.2025.34.1.1

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2025 Vol.34, Issue 1 Next Page

Research Paper

ESG Scores and Firm Productivity: Evidence from South Korea ESG평점과 한국 기업의 생산성: 김정욱*‧이종화**
Jungwook Kim* and Jong Hwa Lee**; *한국개발연구원 국제개발협력센터 선임연구위원, 제1저자(e-mail: awaker2@kdi.re.kr)
**인천대학교 무역학부 조교수, 교신저자(e-mail: joelee@inu.ac.kr)

*Senior Fellow, Center for International Development, Korea Development Institute, First author (e-mail: awaker2@kdi.re.kr)
**Assistant Professor, Division of International Trade, Incheon National University, Corresponding author (e-mail: joelee@inu.ac.kr)

31 March 2025. pp. 1-26

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Abstract

This study tests the relationship between environmental, social, and governance (ESG) scores and firm productivity in South Korea. We employ a lagged-term regression analysis and instrumental variable approach to find that the composite score of ESG is inadequate in explaining total factor productivity (TFP). This finding is due to the mixed direction that each E, S, and G component has on TFP. The governance component consistently impacts firm productivity while Environment and Social components do not. Additionally, labor productivity is positively linked with ESG scores. We argue that the labor market is the channel through which the ESG performance and firm productivity are linked and whether firms can exploit this channel depends on financial restrictions.

Keywords

Corporate Governance

ESG

productivity

South Korea

본 연구는 최근에 많은 관심을 갖는 한국 금융시장에 상장된 기업들의 Environmental, Social, and Governance (ESG) 평점이 총요소생산성과 관계가 있는지 모색한다. 내생성을 극복하기 위해 도구변수방법과 지연회귀분석(Lagged-term regression)을 활용해서 환경, 사회, 지배구조의 질을 대변하는 종합지수는 기업의 생산성을 설명하기엔 부족하다는 결과를 보인다. 그러나 ESG 점수는 노동 생산성과 긍정적으로 관련되어 있다는 결과를 도출한다. 노동 시장이 ESG 성과와 기업 생산성이 연결된 경로임을 주장하며, 기업이 이 경로를 활용할 수 있는지는 재정 제약에 달려 있다고 분석한다.

키워드

ESG

총요소생산성

지배구조

References

Ackerberg, D. A., K. Caves, and G. Frazer, “Identification Properties of Recent Production Function Estimators,” Econometrica, Vol. 83, No. 6, 2015, pp. 2411~2451.10.3982/ECTA13408
Albulescu, C. T., and C. Turcu, “Productivity, Financial Performance, and Corporate Governance: Evidence From Romanian R&D Firms,” Applied Economics, Vol. 54, No. 51, 2022, pp. 5956~5975.10.1080/00036846.2022.2056125
Avramov, D., S. Cheng, A. Lioui, and A. Tarelli, “Sustainable Investing with ESG Rating Uncertainty,” Journal of Financial Economics, Vol. 145, No. 2, Part B, 2022, pp. 642~664.10.1016/j.jfineco.2021.09.009
Barnea, A., and A. Rubin, “Corporate Social Responsibility as a Conflict Between Shareholders,” Journal of Business Ethics, Vol. 97, No. 1, 2010, pp. 71~86.10.1007/s10551-010-0496-z
Barrymore, N., and R. C. Sampson, ESG Performance and Labor Productivity: Exploring whether and when ESG affects firm performance, Paper Presented at the Academy of Management Proceedings, 2021.10.5465/AMBPP.2021.13997abstract
Benlemlih, M., “Corporate Social Responsibility and Dividend Policy,” Research in International Business and Finance, Vol. 47, 2019, pp. 114~138.10.1016/j.ribaf.2018.07.005
Chen, K. C., Z. Chen, and K. J. Wei, “Agency Costs of Free Cash Flow and the Effect of Shareholder Rights on the Implied Cost of Equity Capital,” Journal of Financial and Quantitative Analysis, Vol. 46, No. 1, 2011, pp. 171~207.10.1017/S0022109010000591
DasGupta, R., “Financial Performance Shortfall, ESG Controversies, and ESG Performance: Evidence from Firms Around the World,” Finance Research Letters, Vol. 46, 2022, 102487.10.1016/j.frl.2021.102487
Deng, X., W. Li, and X. Ren, “More Sustainable, More Productive: Evidence from ESG Ratings and Total Factor Productivity Among Listed Chinese Firms,” Finance Research Letters, Vol. 51, 2023, 103439.10.1016/j.frl.2022.103439
Ding, X., Z. Sheng, A. Appolloni, M. Shahzad, and S. Han, Digital Transformation, ESG Practice, and Total Factor Productivity, Business Strategy and the Environment, 2024.10.1002/bse.3718
Dorfleitner, G., C. Kreuzer, and C. Sparrer, “ESG Controversies and Controversial ESG: About Silent Saints and Small Sinners,” Journal of Asset Management, Vol. 21, No. 5, 2020, pp. 393~412.10.1057/s41260-020-00178-x
El Ghoul, S., O. Guedhami, C. C. Y. Kwok, and D. R. Mishra, “Does Corporate Social Responsibility Affect the Cost of Capital?” Journal of Banking & Finance, Vol. 35, No. 9, 2011, pp. 2388~2406.10.1016/j.jbankfin.2011.02.007
Fatemi, A., I. Fooladi, and H. Tehranian, “Valuation Effects of Corporate Social Responsibility,” Journal of Banking & Finance, Vol. 59, 2015, pp. 182~192.10.1016/j.jbankfin.2015.04.028
Feng, J., J. W. Goodell, and D. Shen, “ESG Rating and Stock Price Crash Risk: Evidence from China,” Finance Research Letters, Vol. 46, 2022, 102476.10.1016/j.frl.2021.102476
Kong, G., and D. Kong, “Corporate Governance, Human Capital, and Productivity: Evidence from Chinese Non-Listed Firms,” Applied Economics, Vol. 49, No. 27, 2017, pp. 2655~2668.10.1080/00036846.2016.1245837
Levinsohn, J., and A. Petrin, “Estimating Production Functions Using Inputs to Control for Unobservables,” The Review of Economic Studies, Vol. 70, No. 2, 2003, pp. 317~341.10.1111/1467-937X.00246
Li, G., K. Fujiyama, C. Wu, and Y. Zheng, “Employment Protection, Corporate Governance, and Labor Productivity Around the World,” Journal of International Financial Markets, Institutions and Money, Vol. 92, 2024, 101978.10.1016/j.intfin.2024.101978
Li, Z., and Z. Han, “Green Finance, ESG Performance and Enterprise Total Factor Productivity,” Frontiers in Economics and Management, Vol. 3, No. 8, 2022, pp. 473~486.
Madhavan, A., A. Sobczyk, and A. Ang, “Toward ESG Alpha: Analyzing ESG Exposures through a Factor Lens,” Financial Analysts Journal, Vol. 77, No. 1, 2021, pp. 69~88.10.1080/0015198X.2020.1816366
Pástor, Ľ., R. F. Stambaugh, and L. A. Taylor, “Sustainable Investing in Equilibrium,” Journal of Financial Economics, Vol. 142, No. 2, 2021, pp. 550~571.10.1016/j.jfineco.2020.12.011
Serafeim, G., and A. Yoon, Stock Price Reactions to ESG News: The Role of ESG Ratings and Disagreement, Review of Accounting Studies, 2022a.10.1007/s11142-022-09675-3
Serafeim, G., and A. Yoon, Stock Price Reactions to ESG News: The Role of ESG Ratings and Disagreement, Review of Accounting Studies, 2022b, pp. 1~31.10.2139/ssrn.3765217
Serafeim, G., and A. Yoon, “Which Corporate ESG News does the Market React to?” Financial Analysts Journal, Vol. 78, No. 1, 2022c, pp. 59~78.10.1080/0015198X.2021.1973879
Tian, G. Y., and G. Twite, “Corporate Governance, External Market Discipline and Firm Productivity,” Journal of Corporate Finance, Vol. 17, No. 3, 2011, pp. 403~417.10.1016/j.jcorpfin.2010.12.004
Turban, D. B., and D. W. Greening, “Corporate Social Performance and Organizational Attractiveness to Prospective Employees,” The Academy of Management Journal, Vol. 40, No. 3, 1997, pp. 658~672.10.2307/257057
Whited, T. M., and G. Wu, “Financial Constraints Risk,” The Review of Financial Studies, Vol. 19, No. 2, 2006, pp. 531~559.10.1093/rfs/hhj012
Xue, Q., Y. Jin, and C. Zhang, ESG Rating Results and Corporate Total Factor Productivity, International Review of Financial Analysis, 2024, 103381.10.1016/j.irfa.2024.103381
Yu, X., and Y. Chen, “Does ESG Advantage Promote Total Factor Productivity (TFP)? Empirical Evidence from China’s Listed Enterprises,” Applied Economics, 2024, pp. 1~17.10.1080/00036846.2024.2336886
Zhang, X., X. Zhao, and L. Qu, “Do Green Policies Catalyze Green Investment? Evidence from ESG Investing Developments in China,” Economics Letters, Vol. 207, 2021, 110028.10.1016/j.econlet.2021.110028

Information

Publisher :Environmental and Resource Economics Review
Publisher(Ko) :자원 · 환경경제연구
Journal Title :자원·환경경제연구
Journal Title(Ko) :Environmental and Resource Economics Review
Volume : 34
No :1
Pages :1-26
DOI :https://doi.org/10.15266/KEREA.2025.34.1.1

[1] Ackerberg, D. A., K. Caves, and G. Frazer, “Identification Properties of Recent Production Function Estimators,” Econometrica, Vol. 83, No. 6, 2015, pp. 2411~2451.10.3982/ECTA13408

[2] Albulescu, C. T., and C. Turcu, “Productivity, Financial Performance, and Corporate Governance: Evidence From Romanian R&D Firms,” Applied Economics, Vol. 54, No. 51, 2022, pp. 5956~5975.10.1080/00036846.2022.2056125

[3] Avramov, D., S. Cheng, A. Lioui, and A. Tarelli, “Sustainable Investing with ESG Rating Uncertainty,” Journal of Financial Economics, Vol. 145, No. 2, Part B, 2022, pp. 642~664.10.1016/j.jfineco.2021.09.009

[4] Barnea, A., and A. Rubin, “Corporate Social Responsibility as a Conflict Between Shareholders,” Journal of Business Ethics, Vol. 97, No. 1, 2010, pp. 71~86.10.1007/s10551-010-0496-z

[5] Barrymore, N., and R. C. Sampson, ESG Performance and Labor Productivity: Exploring whether and when ESG affects firm performance, Paper Presented at the Academy of Management Proceedings, 2021.10.5465/AMBPP.2021.13997abstract

[6] Benlemlih, M., “Corporate Social Responsibility and Dividend Policy,” Research in International Business and Finance, Vol. 47, 2019, pp. 114~138.10.1016/j.ribaf.2018.07.005

[7] Chen, K. C., Z. Chen, and K. J. Wei, “Agency Costs of Free Cash Flow and the Effect of Shareholder Rights on the Implied Cost of Equity Capital,” Journal of Financial and Quantitative Analysis, Vol. 46, No. 1, 2011, pp. 171~207.10.1017/S0022109010000591

[8] DasGupta, R., “Financial Performance Shortfall, ESG Controversies, and ESG Performance: Evidence from Firms Around the World,” Finance Research Letters, Vol. 46, 2022, 102487.10.1016/j.frl.2021.102487

[9] Deng, X., W. Li, and X. Ren, “More Sustainable, More Productive: Evidence from ESG Ratings and Total Factor Productivity Among Listed Chinese Firms,” Finance Research Letters, Vol. 51, 2023, 103439.10.1016/j.frl.2022.103439

[10] Ding, X., Z. Sheng, A. Appolloni, M. Shahzad, and S. Han, Digital Transformation, ESG Practice, and Total Factor Productivity, Business Strategy and the Environment, 2024.10.1002/bse.3718

[11] Dorfleitner, G., C. Kreuzer, and C. Sparrer, “ESG Controversies and Controversial ESG: About Silent Saints and Small Sinners,” Journal of Asset Management, Vol. 21, No. 5, 2020, pp. 393~412.10.1057/s41260-020-00178-x

[12] El Ghoul, S., O. Guedhami, C. C. Y. Kwok, and D. R. Mishra, “Does Corporate Social Responsibility Affect the Cost of Capital?” Journal of Banking & Finance, Vol. 35, No. 9, 2011, pp. 2388~2406.10.1016/j.jbankfin.2011.02.007

[13] Fatemi, A., I. Fooladi, and H. Tehranian, “Valuation Effects of Corporate Social Responsibility,” Journal of Banking & Finance, Vol. 59, 2015, pp. 182~192.10.1016/j.jbankfin.2015.04.028

[14] Feng, J., J. W. Goodell, and D. Shen, “ESG Rating and Stock Price Crash Risk: Evidence from China,” Finance Research Letters, Vol. 46, 2022, 102476.10.1016/j.frl.2021.102476

[15] Kong, G., and D. Kong, “Corporate Governance, Human Capital, and Productivity: Evidence from Chinese Non-Listed Firms,” Applied Economics, Vol. 49, No. 27, 2017, pp. 2655~2668.10.1080/00036846.2016.1245837

[16] Levinsohn, J., and A. Petrin, “Estimating Production Functions Using Inputs to Control for Unobservables,” The Review of Economic Studies, Vol. 70, No. 2, 2003, pp. 317~341.10.1111/1467-937X.00246

[17] Li, G., K. Fujiyama, C. Wu, and Y. Zheng, “Employment Protection, Corporate Governance, and Labor Productivity Around the World,” Journal of International Financial Markets, Institutions and Money, Vol. 92, 2024, 101978.10.1016/j.intfin.2024.101978

[18] Li, Z., and Z. Han, “Green Finance, ESG Performance and Enterprise Total Factor Productivity,” Frontiers in Economics and Management, Vol. 3, No. 8, 2022, pp. 473~486.

[19] Madhavan, A., A. Sobczyk, and A. Ang, “Toward ESG Alpha: Analyzing ESG Exposures through a Factor Lens,” Financial Analysts Journal, Vol. 77, No. 1, 2021, pp. 69~88.10.1080/0015198X.2020.1816366

[20] Pástor, Ľ., R. F. Stambaugh, and L. A. Taylor, “Sustainable Investing in Equilibrium,” Journal of Financial Economics, Vol. 142, No. 2, 2021, pp. 550~571.10.1016/j.jfineco.2020.12.011

[21] Serafeim, G., and A. Yoon, Stock Price Reactions to ESG News: The Role of ESG Ratings and Disagreement, Review of Accounting Studies, 2022a.10.1007/s11142-022-09675-3

[22] Serafeim, G., and A. Yoon, Stock Price Reactions to ESG News: The Role of ESG Ratings and Disagreement, Review of Accounting Studies, 2022b, pp. 1~31.10.2139/ssrn.3765217

[23] Serafeim, G., and A. Yoon, “Which Corporate ESG News does the Market React to?” Financial Analysts Journal, Vol. 78, No. 1, 2022c, pp. 59~78.10.1080/0015198X.2021.1973879

[24] Tian, G. Y., and G. Twite, “Corporate Governance, External Market Discipline and Firm Productivity,” Journal of Corporate Finance, Vol. 17, No. 3, 2011, pp. 403~417.10.1016/j.jcorpfin.2010.12.004

[25] Turban, D. B., and D. W. Greening, “Corporate Social Performance and Organizational Attractiveness to Prospective Employees,” The Academy of Management Journal, Vol. 40, No. 3, 1997, pp. 658~672.10.2307/257057

[26] Whited, T. M., and G. Wu, “Financial Constraints Risk,” The Review of Financial Studies, Vol. 19, No. 2, 2006, pp. 531~559.10.1093/rfs/hhj012

[27] Xue, Q., Y. Jin, and C. Zhang, ESG Rating Results and Corporate Total Factor Productivity, International Review of Financial Analysis, 2024, 103381.10.1016/j.irfa.2024.103381

[28] Yu, X., and Y. Chen, “Does ESG Advantage Promote Total Factor Productivity (TFP)? Empirical Evidence from China’s Listed Enterprises,” Applied Economics, 2024, pp. 1~17.10.1080/00036846.2024.2336886

[29] Zhang, X., X. Zhao, and L. Qu, “Do Green Policies Catalyze Green Investment? Evidence from ESG Investing Developments in China,” Economics Letters, Vol. 207, 2021, 110028.10.1016/j.econlet.2021.110028

자원·환경경제연구 ISSN:1229-9146(Print) Environmental and Resource Economics Review

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