ESG performance on the value of family firms: international evidence during Covid-19

The study investigates whether ESG performance enhances the financial value of family firms, particularly during the uncertainty of the COVID-19 period. Prior evidence on ESG’s effect on firm value is mixed, with studies reporting positive, negative, or insignificant relationships. Family firms constitute a compelling context due to competing theoretical perspectives: socioemotional wealth (SEW) suggests ESG initiatives can enhance reputation and investor appeal; stewardship theory posits that family managers act as guardians, undertaking long-term, stakeholder-oriented investments; while “amoral familism” suggests economic interests may dominate, reducing incentives to invest in ESG unless reputational benefits accrue. The paper examines an international sample of the 500 largest family firms (2015–2021) to test whether ESG performance relates to firm value and whether this relationship persisted or changed during COVID-19. The hypotheses are: H1a: ESG performance positively affects the financial performance of family firms during COVID-19; H1b: ESG performance negatively affects the financial performance of family firms during COVID-19.

The literature on ESG and firm value is inconclusive. Several studies find a positive association between ESG performance and firm value/returns, including during COVID-19 (e.g., Albuquerque et al., 2020; Garel and Petit-Romec, 2021; Engelhardt et al., 2021; Broadstock et al., 2021; Habib and Mourad, 2023), while others report negative effects or no benefits (Fatemi et al., 2018; Kim and Lyon, 2015; Zahid et al., 2022; Demers et al., 2021; Hoang et al., 2021; Renneboog et al., 2008; Horváthová, 2010). Regarding family firms, theory provides competing expectations. SEW and stewardship perspectives imply stronger ESG engagement to protect reputation and pursue long-term stakeholder value; conversely, “amoral familism” suggests ESG may be deprioritized unless it benefits family socioemotional objectives. Empirical work indicates family firms can outpace non-family firms on environmental compliance and performance (Berrone et al., 2010; Agostino and Ruberto, 2021; Graafland, 2020), and may be more resilient during crises (Amore et al., 2022; Miroshnychenko et al., 2024). Yet, whether ESG translates to higher family firm value during COVID-19 remained unclear. The paper tests alternative hypotheses: H1a: ESG performance positively affects family firm financial performance during COVID-19; H1b: ESG performance negatively affects family firm financial performance during COVID-19.

Sample: International panel of the 500 largest family-owned firms worldwide (EY & University of St. Gallen Family Business Index), 2015–2021. Financial/market and ESG data are from Thomson Reuters Refinitiv Eikon. Exclusions: financial institutions (different accounting), private family firms (lack market capitalization for Tobin’s Q proxy), and firms with missing/inconsistent data. Final sample: 274 listed family firms, 1,118 firm-year observations across multiple countries (largest shares from USA 13%, Mexico 10%, France 7%).

Variables: Dependent variable is firm value measured by Market-to-Book ratio (MtoB), a proxy for Tobin’s Q, defined as (book assets − book equity + market equity)/book assets. Main explanatory variable is ESG overall score. COVID is a dummy equal to 1 in 2020–2021, 0 otherwise. Controls: Size (ln sales), Debt (total debt/total assets), Tangibility (fixed assets/total assets), Dividends (cash dividends/(total assets − cash & short-term investments)), Ownership concentration (largest shareholder %), Cash holdings (cash & short-term investments/total assets). Institutional controls: legal origin (Civil, Common, Scandinavian, German law) and Corruption Perceptions Index; country fixed effects included. Robustness: ROA (net income/total assets) as alternative dependent variable; DESG, a dummy equal to 1 if ESG > 0, else 0.

Model and identification: Dynamic panel estimated via Generalized Method of Moments (GMM) for panel data (Arellano–Bond/Arellano–Bover/Blundell–Bond) to address unobserved heterogeneity and endogeneity between ESG and performance (bi-directional causality). Equation specifies MtoB as a function of ESG, COVID, ESG×COVID, controls, legal origin, corruption, and fixed effects. Validity checks include Hansen test for over-identifying restrictions and Arellano–Bond test for absence of AR(2) in residuals. Reported diagnostics indicate acceptable instrument validity and no second-order serial correlation. Descriptive statistics indicate substantial heterogeneity: mean MtoB 1.26 (SD 0.86); mean ESG 50.15 (SD 21.51).

• Descriptive statistics: MtoB mean 1.26 (SD 0.86; min 0.07, max 4.99). ESG mean 50.15 (SD 21.51). Controls show high dispersion, indicating heterogeneous firms across countries.
• Correlations: MtoB is positively and significantly correlated with ESG (Table 3), suggesting a preliminary positive association.
• Main GMM results using MtoB (Table 4):
  • ESG is positively and significantly associated with firm value. Without controls: ESG coefficient ≈ 0.194***. With controls: ≈ 0.313**. In a specification separating COVID, ESG remains positive ≈ 0.234**.
  • COVID-19 period exerts a negative effect on firm value: COVID coefficient ≈ −0.367*** in models including the pandemic dummy.
  • Interaction effects (textual summary): For firms with superior ESG performance, the negative COVID-19 impact does not materialize, implying a positive moderating effect of ESG during the pandemic.
• Robustness with ROA (Table 5):
  • ESG is positively associated with ROA in multiple specifications (e.g., ≈ 0.708**, 1.268**, 1.377**, 1.539**, 0.873**).
  • COVID negatively affects ROA (e.g., ≈ −1.862***; ≈ −1.157**).
  • ESG×COVID interaction is positive and significant in specifications (e.g., ≈ 2.285*; ≈ 1.075**), indicating ESG mitigated the pandemic’s adverse impact on accounting performance.
• Robustness with DESG dummy (Table 6): DESG is positively associated with MtoB across specifications (e.g., ≈ 0.144**, 0.092**, 0.083*, 0.507***). Interaction patterns are consistent with ESG buffering COVID effects in higher-ESG firms.
• Diagnostics: Hansen test p-values generally high, supporting instrument validity; Arellano–Bond AR(2) tests indicate no second-order serial correlation. Overall, results support H1a and reject H1b.

Findings show that ESG performance enhances family firm value and cushions the adverse effects of COVID-19. This supports the view that investors interpret strong ESG as a credible signal of lower risk and better future performance during uncertainty. The positive ESG–value link aligns with socioemotional wealth and stewardship perspectives: family firms appear willing to invest in stakeholder-oriented, long-term initiatives that protect reputation and improve financial outcomes. The attenuation of COVID-19’s negative effects among higher-ESG family firms indicates that ESG capabilities function as a resilience mechanism, improving market-based (MtoB) and accounting (ROA) performance. These results contribute to debates on ESG’s financial materiality by providing international evidence in family firms, suggesting that ESG investment is value-relevant, particularly in crises.

The study provides international evidence (2015–2021) that ESG performance is positively and significantly linked to the financial performance of listed family firms, and that stronger ESG mitigated the negative valuation and profitability effects of the COVID-19 period. Contributions include: (1) the first dedicated analysis of ESG–performance links in family firms during COVID-19; (2) global evidence augmenting literature on ESG’s value relevance; and (3) insights into sustainable growth of family firms consistent with extended SEW and shareholder value maximization. Managerial implications emphasize enhancing ESG to increase value, attract capital, manage risk, and bolster resilience to external shocks. Investor implications suggest considering ESG quality as an indicator of lower downside risk and better expected performance in turbulent times. Future research should broaden samples (include non-family firms and business groups), explore alternative theoretical lenses (e.g., agency theory), test additional data sources, extend time horizons, account for family firm heterogeneity (restricted vs. extended SEW), and examine potential nonlinear ESG–performance relationships.

• Sample scope restricted to listed family firms; results may not generalize to non-family firms or private firms. Future work should include broader samples (non-family firms, business groups).
• Theoretical framing primarily relies on stakeholder theory; alternative perspectives (e.g., agency theory) may yield different mechanisms and predictions.
• ESG and financial data sourced from Thomson Reuters Refinitiv; replication with other databases (e.g., Bloomberg) is encouraged to assess robustness.
• Time window constrained to 2015–2021; extending the period could assess persistence and post-pandemic dynamics.
• Family firm heterogeneity not fully explored; incorporating restricted vs. extended SEW and ownership/management configurations may refine insights.
• Potential nonlinearities in the ESG–performance relationship warrant investigation (e.g., U-shaped effects).