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<p>We investigate an important research gap: how company level Environmental, Social, and Governance (ESG) score and country level Governance interact to shape company valuation. We construct a linear model that links company valuation (the dependent variable) with our main variables of interest—ESG scores, the Country Governance Index (CGI, serving as a proxy for country-level Governance indicator), and their interaction term (ESG × CGI)—along with several control variables, including profitability, liquidity, leverage, and size. The model is estimated using an extensive annual panel dataset comprising 469 mining companies across 45 countries over the period 2014–2023 (4,690 observations). To address methodological challenges such as endogeneity and dynamic panel bias, we employ the System Generalized Method of Moments (S-GMM) estimator. We found three key insights. First, ESG practices are negatively associated with firm value in this sample and model setting, suggesting that ESG implementation costs may outweigh benefits in the mining sector under the conditions studied. Second, country-level governance quality also exerts a negative impact, reflecting potential regulatory burdens. Third, and most notably, the interaction between firm-level ESG and country-level governance quality produces a positive effect—indicating that firm-level ESG and country governance reinforce each other, consistent with the complementary institutions hypothesis. These results remain robust across various sensitivity tests. Overall, our study provides context-specific empirical insights for corporate managers and regulators in designing effective ESG policies, interpreted as conditional associations within the global mining sector.</p>

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ESG costs and firm value global evidence from the mining industry

  • 期刊论文

  • 出版模式：

    开放获取

  • 发表日期：

    2026年7月12日

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  • Mochamad Saeful Burhanudin,
  • Moch. Doddy Ariefianto,
  • Ahmad Erani Yustika

摘要

We investigate an important research gap: how company level Environmental, Social, and Governance (ESG) score and country level Governance interact to shape company valuation. We construct a linear model that links company valuation (the dependent variable) with our main variables of interest—ESG scores, the Country Governance Index (CGI, serving as a proxy for country-level Governance indicator), and their interaction term (ESG × CGI)—along with several control variables, including profitability, liquidity, leverage, and size. The model is estimated using an extensive annual panel dataset comprising 469 mining companies across 45 countries over the period 2014–2023 (4,690 observations). To address methodological challenges such as endogeneity and dynamic panel bias, we employ the System Generalized Method of Moments (S-GMM) estimator. We found three key insights. First, ESG practices are negatively associated with firm value in this sample and model setting, suggesting that ESG implementation costs may outweigh benefits in the mining sector under the conditions studied. Second, country-level governance quality also exerts a negative impact, reflecting potential regulatory burdens. Third, and most notably, the interaction between firm-level ESG and country-level governance quality produces a positive effect—indicating that firm-level ESG and country governance reinforce each other, consistent with the complementary institutions hypothesis. These results remain robust across various sensitivity tests. Overall, our study provides context-specific empirical insights for corporate managers and regulators in designing effective ESG policies, interpreted as conditional associations within the global mining sector.