The Influence of Regulatory Oversight on Environmental, Social, and Governance Ratings

Date of Award

Spring 2020

Document Type

Dissertation

Degree Name

Doctor of Business Administration (DBA)

Committee Chair

Beverly Smith

Committee Member

Charles Fenner

Committee Member

John Nadalin

Abstract

Ratings made by third parties of a firm’s performance in the specific areas of environmental stewardship, social responsibility, and overall governance, or ESG have become important criteria that investors consider in determining a firm’s value. Based on stakeholder theory, the purpose of this empirical investigation is to examine the relationship between regulatory oversight and third-party ESG ratings. The methodology chosen for this research was quantitative, observational, and retrospective. Financial statistics were collected on 471 firms from four industry sectors, two heavily regulated sectors and two less regulated sectors. ESG metrics from two ESG rating services, MSCI and Sustainalytics, were collected from Fidelity.com and Yahoo Finance, respectively. The quantitative evaluation included multiple regression analysis followed by multiway frequency analysis to determine if a quantifiable relationship exists between regulatory oversight and ESG ratings. This study may provide information to help stakeholders recognize the influence of regulation on ESG ratings. The result of this study may also be beneficial in explaining to investors and company leaders why ESG ratings vary among different industry sectors. This quantitative study is limited to four specific sectors but may provide insights applicable to other sectors based on regulatory intensity.

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