Authors: Associate Professor Dr.P.Parameswari, Professor Dr.Renu Rathi
Abstract: The link between Environmental, Social, and Governance (ESG) metrics and corporate valuation is still disputed, with inconsistent findings being reported in past studies as a result of endogeneity issues in the estimation. The current paper conducts an empirical investigation on how ESG performance impacts corporate valuation (Tobin's Q) through the mediating role of investor sentiment using a panel data set of 2,845 firms listed in the United States between 2015–2025 (23,160 observations). Using fixed-effect regression models, instrumental variables (IVs) approach, and causal mediation technique, we found that the effect of a one-standard deviation rise in ESG composite score on Tobin's Q is 6.8%, but completely mediated via investor sentiment (average causal mediation effect of 82%). Interestingly, the Environmental aspect has the strongest association (β = 0.094, p<0.001), while the Social and Governance aspects have entirely indirect links. This impact is stronger when the investors’ attention increases (2020-2021) and in more sensitive industries.
