We are interested in checking drivers of firm value with further consideration of ESG, and governance related variables besides fundamental variables that are generally agreed upon in their roles in determining firm value. We select 3,653 non-financial samples from KRX from 2011 to 2020. ESG related scores are taken from KCGS (Korea Institute of Corporate Governance and Sustainability). Governance related variables include ESG, largest shares, foreign shares, and % of outside directors. We document that market value of firms are basically determined by fundamentals (EPS, ROA). We find that firms with strong ESG activities are associated with higher market value. It is approved that some of stronger governance conditions (higher foreign shares, more independent board) positively and significantly influence corporate market evaluation. The interaction between fundamentals and ESG commitment is found to be positive, suggesting that the positive effect of ESG activities on corporate market valuation is expected especially in case of higher foreign shares, and more independent board. We find that the interaction between fundamentals and governance conditions is positive, suggesting that the positive effect of governance conditions on firm valuation is expected especially in case of higher foreign shares, and more independent board. We want to document that fundamental variables significantly contribute to enhancing market valuation of firms, social activities among ESG activities matter in improving firm value. Again ESG activities in association with higher foreign shares, and more independent board contribute to enhancing market valuation of firms. We find that fundamendatals impact firm value, and ESG and governance variables adds explanations.
Jangwoo Lee (Sat,) studied this question.