Assessing the Value Relevance of Environmental, Social and Governance (ESG) Performance from a Religiosity Perspective

We investigate the link between religiosity and environmental, social and governance (ESG) on market value. Value relevance is generally used to measure the extent to which accounting information accurately reflects market value. Using the value relevance of Ohlson (1995) model, we analyze 6.573 firm-year observations from eight countries over the period of 2015–2021. We find that ESG has a positive effect on market value, particularly in firms with high environmental sensitivity. During COVID-19, ESG performance has increased significantly, both in higher and lower religiosity countries. However, its effect will be higher when firms domiciled in a high level of religiosity country. Overall, our findings are consistent with the value-enhancing and social norms’ theories. It suggests that firms domiciled in high-religiosity countries have more reliable ESG performance than others. Our study contributes to the literature by giving a new perspective from social norms’ theory and addressing the important role of religiosity in why ESG is mispricing in different countries. The research findings also have practical implications that firms with high environmental sensitivity should pay attention to the impact of business risk on the environment.