Is the ESG Penalty Real? A Propensity Score Matching Analysis of Indian Listed Firms

Unofficial AI-generated summary based on the public title and abstract. Not an official translation.

🔬研究者:Provides evidence that size confounding can create spurious ESG-valuation correlations; relevant for methodological improvements in ESG-performance studies.

🏢実務担当者:Investors should be cautious when interpreting ESG-valuation differences across firms without adjusting for size.

🏛政策担当者:Suggests that mandatory ESG disclosure alone may not immediately affect firm valuation, as the post-2015 Indian reform showed no differential effect.

This paper investigates whether the mostly reported negative association between ESG classification and firm valuation reflects a genuine causal effect or a statistical artefact. Using Bloomberg data for 487 listed Indian firms (84 ESG-classified, 403 non-ESG) over 2005–2023, a Difference-in-Differences framework reveals a significant cross-sectional ESG penalty on Tobin’s Q (β = −0.695, p < 0.01). Similar to Difference-in-Differences framework, propensity score matching on firm size, matching each ESG firm to two non-ESG firms of comparable log market capitalisation, eliminates this penalty (β = −0.662, p > 0.10). The result holds across most performance measures (ROA, ROE, DuPont ROE) and survives lagged dependent variable controls, winsorisation, placebo tests, and dynamic event study validation. The ESG × Post2015 DID interaction is null across all specifications, confirming that India’s post-2015 regulatory shift produced no measurable differential financial effect for ESG firms. The apparent ESG penalty is a size artefact. ESG firms are larger as a group, and larger firms trade at lower Tobin’s Q for structural reasons unrelated to ESG. Cross-sectional ESG performance correlations should not be interpreted without adequate counterfactual construction.

• semanticscholar https://doi.org/10.52783/ijept.308first seen 2026-07-18 08:10:20