My first project about ESG: the effects of market competition

This paper investigates how product market competition affects corporate environmental, social, and governance practices (ESG) in 22 emerging markets using a sample of 5.971 firm-year observations from 2011 to 2019. First, I investigate the relationship between industry concentration and ESG practices. Second, using a differences-in-differences technique and matched samples from a treated vs. a control group configuration, I explore exogenous variation in one country’s competitive environment (i.e., Brazil) to assess the causal effect from competition to ESG practices. The results suggest that the correlation between competition and ESG practices is negative and that firms adjust ESG practices negatively after a shock in competition. Contrary to evidence from developed economies, my results indicate that managers from emerging markets decrease ESG practices to face more challenging and uncertain times, supporting the view that they invest in these practices for altruistic purposes.

This paper was selected to the presented at the World Finance Conference in 3-6 August, 2021.

Published at Finance Research Letters: here.

Henrique Castro Martins
Henrique Castro Martins
Assistant Professor of Finance