ABSTRACT As environmental, social, and governance (ESG) becomes central to corporate strategy, firms must navigate the tension between meeting stakeholder expectations and avoiding overinvestment. This study examines how interpretive uncertainty—arising from stakeholders' divergent cognitive frames—produces a nonlinear relationship between ESG performance and firm value. Using panel data from Korean listed firms, we demonstrate an inverted U–shaped relationship, with higher ESG investment eroding returns. To explain this effect and its mitigation, we integrate sensegiving theory and cultural context into ESG research. We argue that firms can reduce interpretive uncertainty through strategic sensegiving activities, thereby mitigating the diminishing returns for high ESG performance in empathy‐laden cultural contexts by shaping the amount and richness of ESG‐related information. Specifically, we show that advertising intensity and philanthropic giving positively moderate the inverted U–shaped relationship, allowing firms to sustain the benefits of higher ESG scores. By linking interpretive uncertainty and sensegiving, this study offers a nuanced perspective on managing ESG performance and firm value.
Kim et al. (Tue,) studied this question.