Title: Testing the Relationship between firm-level ESG behaviors and performance
For centuries, humankind has been fascinated with the pursuit of a good life. Aristotle's teachings on virtuous living and its connection to happiness and well-being continue to be relevant today, especially in the business world. Business scholars have explored the correlation between ethical treatment of stakeholders – including employees, customers, communities, and the environment – and business success, as indicated by metrics such as market share, profits, and valuation. The rise of theories like the triple bottom line, Environmental, Social, and Governance (ESG) investing, Corporate Social Responsibility (CSR), shared value, and integrated non-market strategy highlights the belief that companies prioritizing social responsibility can achieve both positive outcomes for society and success in business, creating a mutually beneficial scenario.
Despite this logic and numerous theoretical models, there has been a dearth of empirical evidence linking the strategic choice of what firms say in response to corporate social crises. Firms have countless ways to respond to negative incidents in the absence of standardized disclosures. Competing incentives may result in competing disclosure choices. In the wake of a negative incident, firms may choose to provide forward-looking information to explain how they are improving. Alternatively, firms may provide unrelated positive disclosures to distract from the incident. In the ESG space, one potential reason for these different responses is that ESG ratings agencies may be more likely to respond to observable disclosures than to unobservable activities.
This proposal aims to advance the current literature on corporate sustainability by analyzing the content of annual voluntary disclosures made by firms through their ESG reports. To carry out this study, we have manually collected a database of these reports and will use NLP techniques to identify key features related to the materiality of the firms and their sectors. The first objective of the project is to explore the relationship between disclosure practices and ESG performance. We will define ESG performance using various proxies and examine both the quantity and tone of the disclosures. This analysis will consider both firm-specific incidents (e.g., an oil spill by Exxon vs. Chevron) and industry-wide incidents (e.g., all Oil & Gas firms' response to an Exxon spill). We expect to find a positive correlation between the related disclosure and better ESG performance. Broadly, we plan on covering two dimensions of ESG - environmental incidents and performance, and employee incidents and performance related to diversity and safety. The outcome of this project is a research paper that can be presented at relevant conferences and potentially published in a scholarly journal.
Course Requirements We do not have any required courses or majors to apply for this project.
We prefer a student in (i) economics (with an interest in applied microeconomics), (ii) strategic management, and (iii) data science (those with interest in computer vision and/or NLP).
Strong analytical and critical thinking abilities to synthesize and interpret data. Excellent written and verbal communication skills to effectively communicate findings and results. Detail-oriented and organized approach to research and data management to ensure accuracy and efficiency. Experience in using Python or R is a plus. Potential interest in conducting research.
Direct mentor: Faculty/P.I., (We will have two faculty members: Dr. Kunal Sachdeva and Dr. Doug Schuler - both of the business school.