ESG shareholder engagement and firm value: evidence from Korea National Pension Service

초록

As ESG issues are increasingly viewed as financially material, ESG shareholder engagement has become an important channel through which institutional investors seek to influence corporate behaviour and enhance firm value. This study investigates whether ESG engagement by influential institutional investors affects firm value and how corporate governance moderates this relationship. Using 3104 firm-year observations of Korean listed firms from 2020 to 2023, we conduct fixed-effects panel regressions to analyse the valuation effects of ESG shareholder engagement. We find consistent evidence that ESG engagement by influential institutional investors enhances firm value. Specifically, disclosures by the National Pension Service (NPS) - the largest and most influential institutional investor in Korea - of its intention to engage firms on ESG issues are associated with a significant increase in firm value in the following year. Furthermore, this positive association is significantly moderated by corporate governance quality, that is, stronger for firms with weaker internal governance structures. These results indicate that ESG shareholder engagement operates as a substitute external governance mechanism, mitigating deficiencies in internal governance and contributing to firm value creation. Overall, the study highlights the value relevance of investor-driven ESG engagement and underscores the importance of governance context in shaping its effectiveness.

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