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Digital archive of theses discussed at the University of Pisa


Thesis etd-12042022-212749

Thesis type
Tesi di dottorato di ricerca
Thesis title
Essays in Sustainable Corporate Finance
Academic discipline
Course of study
tutor Maraghini, Maria Pia
  • Capital Structure
  • ESG
  • Firm Performance
  • Firm valuation
Graduation session start date
Release date
The thesis consists of three chapters. The first chapter is a literature review study that is aimed at looking at corporate finance literature through the lens of ESG indicators. The objective of the study is to bring to light the underlying conceptual structure of the field. By using the bibliographic coupling and content analysis technique of science mapping, we stacked the literature into different research streams. We further supplemented each of the research streams with an average effect size by conducting meta-analysis. Finally, research trends and a future research framework are proposed based on the research gaps identified in this review.

Second chapter of the study is selected on the base of the first chapter. The Environmental Social and Governance (ESG) impact literature was populated by empirical evidence about how ESG impacts financial stability, financial value, such as high returns, lower cost of capital, etc. There is scant literature on how markets react to ESG behavior. The central goal of this paper is to determine whether different market indicators respond systematically or asymmetrically. We used a global dataset that includes data from Asia, Africa, Europe, the Americas, and Oceania to study this research question. The symmetric behaviour imply that market can clearly read and interpret what is disclosed in integrated reports (IR). It also imply that market trust ESG performance and establish a link between sustainability performance and financial performance. We find an asymmetric behaviour for the entire sample. We also did a geographical analysis and found that market behavior is only symmetric for EU firms. Our study has implications for policy makers. Inconsistent market reaction to ESG performances suggests loopholes in auditing practices of ESG practices that create confusion in the market. Second, this study also supports EU initiatives taken to promote sustainability and also provides empirical evidence that making ESG reporting mandatory is an important initiative toward the standardization process.

The third chapter is about valuation effect of ESG performance and its implication for the capital structure of the companies. Our paper only focuses on European companies, since our second chapter found that the market is symmetrical towards ESG performance only in the EU. The European market can clearly read, interpret, and establish a link between sustainability performance and financial performance. We study the valuation effect of ESG performance by using a sample of 895 European firms. The misvaluation of a company is determined by the ratio of its market price to its true value. The true value calculation is based on two measures: the first is based on analysts' forecasted price and the second is estimated on the residual income model. We find that improvements in ESG profiles lead to an increase in market price in relation to its true value. The analysis of the overvalued and undervalued stocks separately revealed that ESG performance further boosts the existing level of overvaluation. In contrast, it brings back the undervalued stocks to their true value for residual income measures of misvaluation. Alternatively, mispricing measured by analysts' forecast price is only significant for the entire sample and undervalued firms. Our analysis suggests that information asymmetry and market sentiment play moderating roles in the ESG-misvaluation nexus suggesting ESG as a friction to market efficiency. Moreover, ESG-related misvaluations marginally influence capital structure through market timing practices. We attribute this valuation effect to the demand effect of prevailing ESG investing. Our findings are robust to alternative estimates of valuation.