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Analysis of Impacts of SDGs Activities on Firm Value and Utility

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  • Analysis of Impacts of SDGs Activities on Firm Value and Utility : Proposals of SDGs Finance and Indices in Japan
  • Proposals of SDGs Finance and Indices in Japan
  • Proposals of SDGs Finance and Indices in Japan

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Abstract

Previous empirical research papers suggest that CSR, ESG, and SDGs might have positive impacts on the firm value (Khan, Serafeim, and Yoon 2016 etc.) while a plethora of papers also suggest that some CSR and ESG factors have no or negative impact on the firm value (Kawamura and Nagata 2016 etc.). We analyze the impact of SDGs on the firm value by theoretical analysis distinguishing the firm value as cash-based value which is derived from the Discount Cash Flow method incorporating the magnitude of cash flow, market risk, and life span of the corporation, and recognized value derived by considering the investors’ utility to SDGs contribution in addition to cash-based value. Our analysis suggests that firm’s contribution to SDGs have positive impact on the firm value if it could increase the investor base, that is, SDGs could improve the recognized firm value. However, if the investors and shareholders care both SDGs contribution and the firm value, the cash-based firm value might be compensated. Mixed empirical results are consistent with our models because the positive impact of SDGs on the firm value via increment in investor base might be offset by the destruction of the cash-based firm value by the excessive investment to SDGs. In order to reach conclusion whether SDGs have positive impact on the firm value, we need to conduct more careful analysis constructing the SDGs index associated with the SDGs contribution by the firm. Additionally, our analysis suggests that if we desire to achieve SDGs at higher level, we need to understand the utility of investors and shareholders and consider the scheme providing the incentives for managers in order to make them maximize the utility of shareholders who care both SDGs and the firm value.

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