Does industry munificence matter? ESG controversies and firm value

Purpose The present study explores the effect of environmental, social and governance (ESG) controversies on firm value. Further, the study investigates when industry munificence moderates this association. Design/methodology/approach The research employs 5,670 firm-year observations from 2012 to 2018 for the United States (US)-based firms from the Refinitiv database. The direct and moderating effects were tested using a fixed effect panel regression model. Findings The primary analysis unexpectedly demonstrates that ESG controversies do not affect firm value. On the contrary, ESG controversies decrease firm value when interacting with industry munificence; this interaction effect is both positive and highly significant. We observed that reduced (increased) ESG controversies translate to higher (lower) firm value in industries with high munificence and lower (higher) firm value with low munificence. These results remain consistent with alternative proxies for size and CSR. Conducting sample split analysis over time, we discovered significant results in 2015–2018, indicating stakeholders' awareness has increased over time. Research limitations/implications The findings offer policymakers distinctive perspectives on the moderating role of munificence that impacts companies’ strategic imposition or limitation of ESG controversies to boost their value. Managers can gain valuable insights from the results regarding the importance of munificence in the relationship between ESG controversies and firm value. Originality/value This study is the first to examine the moderating effect of industry munificence in the relationship between ESG controversies and firm value for US firms.