Essays on the role of CSR information in capital markets: Evidence from stakeholders and information intermediaries
by Jana Wagner
Date of Examination:2024-10-10
Date of issue:2024-11-12
Advisor:Prof. Dr. Jörg-Markus Hitz
Referee:Prof. Dr. Jörg-Markus Hitz
Referee:Prof. Dr. Olaf Korn
Referee:Prof. Dr. Nico Lehmann
Persistent Address:
http://dx.doi.org/10.53846/goediss-10848
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Abstract
English
This thesis analyizes the role of corporate social responsibility (CSR) information in capital markets and its use by stakeholders and information intermediaries. On the basis of three studies, the thesis contributes to two streams of literature: literature on the role of ESG and governance ratings in capital markets and literature on real effects following mandatory CSR transparency. In the first study, we examine whether and how information reflected in corporate governance ratings is valuable for investors and how these informational properties of governance ratings vary across institutional settings. For a global sample of firms, we document a positive association between the Corporate Governance Quotient, a commercial rating marketed by ISS, and Tobin’s Q. We show that this positive association derives from both ISS’s information selection and collection skills (public information component) as well as their proprietary technology and access to private information (technology component). This finding helps explain the observed importance of governance rating agencies to investors. Digging further, we find that the observed relation holds exclusively for firms located in the US. We discuss potential explanations for this finding. In the second study, I shed light on the economic role of environmental, social, and governance (ESG) ratings, the dynamics of the rating market, and the quality and potential challenges of (ESG ratings. The relevance and use of ESG ratings have increased significantly, with large capital flows following ESG ratings. ESG rating providers function as information intermediaries that can reduce information processing costs and coordinate capital flows according to ESG criteria. Based on a review of literature central to the debate, I find that empirical evidence on the economic role is mixed with varying predictive abilities regarding financial outcomes or better ESG performance. Main challenges of ESG ratings relate to a lack of a common definition of ESG, data availability and quality, the convergence across raters, and rating validity that is hard to assess. Regulatory efforts like the European Union’s Corporate Sustainability Reporting Directive (CSRD: Directive 2022/2464/EU) and the current proposal targeting rating providers (EU 2023/0177/COD) might be able to address some of these issues. In the thrid study, we examine whether and how non-governmental organizations (NGOs) react to a mandated increase in corporate social responsibility (CSR) information. We exploit the implementation of the EU’s Non-Financial Reporting Directive (NFRD: Directive 2014/95/EU) using a difference-in-differences design combined with further cross-sectional analyses. Results show that NGOs step up their campaigning activity in the EU following the first-time publication of mandatory CSR reports. Additionally, we observe a concurrent shift in campaign topics towards more NFRD-related concerns in campaigns targeting EU firms. Our findings are potentially important to (EU) regulators who rely on stakeholder pressure to accomplish the desired goals via a CSR transparency mechanism.
Keywords: corporate social responsibility; information intermediation; ESG ratings; non-financial reporting; stakeholder
