ESG and firm performance: The role of size and media channels

Focusing on the environmental, social, and governance (ESG) factors is important as it affects the firm's capability to raise capital and attract investors, and hence, firm performance. However, the role of the size and media channels in explaining the relationship between ESG and firm performance remains under examined. Using data for all firms with ESG scores in G20 countries from 2007 to 2020, we analyze the relationship between the three pillars of ESG scores and firm performance by focusing on the role of these two channels. The firm size channel suggests that larger firms tend to invest into the ESG activities due to economies of scale to better reflect stakeholders' demands. Meanwhile, under the media channel, firms with better media coverage can reduce information asymmetry regarding ESG investments for their stakeholders. As a result, firms can avoid various costs following the stakeholder theory view (e.g., stakeholders' punishment costs), and hence, have better performance.