We analyze how the ESG performance of private firms (proxied by their RepRisk Ratings and negative ESG incidents) affect their subsequent performance. We also analyze how customers, employees and potential investors (venture capitalists, IPO market investors and acquirers) view private firms’ ESG performance. Using RepRisk data combined with information from the NETS, VentureXpert, and SDC Platinum databases, we find that entrepreneurial firms experiencing more negative ESG incidents or lower RepRisk Ratings exhibit lower future sales and employment growth, reduced future venture capital financing, and a lower likelihood of successful future exit through IPOs or acquisitions. To address endogeneity concerns, we exploit firms’ first ESG incidents as plausibly exogenous shocks in a stacked difference-in-differences design, providing causal evidence consistent with our baseline findings. Using LinkedIn and Nielsen Retail Scanner data, we further show that more negative ESG incidents and lower RepRisk ratings are associated with lower net inflows of more experienced and higher quality employees and lower product prices. Our results are consistent with customers, employees, and investors in entrepreneurial firms caring about their ESG performance.
About the Speaker
Harshit Rajaiya is an Assistant Professor of Finance at the Telfer School of Management, University of Ottawa. He received his PhD in Finance from the Carroll School of Management at the Boston College. He did his masters from the Indian Institute of Management, Calcutta and his bachelors in mechanical engineering from the Indian Institute of Technology, Kharagpur.
Professor Rajaiya’s research mainly focuses on entrepreneurial finance, venture capital financing and investment strategies, role of intellectual properties in external financing of private and public firms, FinTech, and the importance of online reviews on corporate financial policies of firms. His recent project use big data on employee ratings and the impact of employee ratings on corporate financial policies of firms. His research has been presented at many conferences like European Finance Association, Midwest Finance Association, Financial Management Association, and other.
