Variable definitions
| Variable | Variable description and measurement | Source |
|---|---|---|
| Dependent variable | ||
| ESGC | Rearranged ESG controversy score: The original values of the Refinitiv ESG controversy score are rearranged as 100- the original Refinitiv ESG controversy score, for the convenience of interpretation of the results. In this modified score, the value of 0 implies no controversies and the value of 100 demonstrates the highest level of controversies level | DataStream |
| Independent variable | ||
| PRisk | The average firm-level political risk over the four quarters developed by Hassan et al. (2019). The PRisk variable is standardized by the standard deviations | www.firmlevelrisk.com/ |
| Control variables | ||
| Firm-level variables | ||
| MTB | The market value of assets is scaled by the book value of assets | Compustat |
| LEV | Financial leverage: calculated as the total debt scaled by total assets | Compustat |
| RD | Research and development expenses: scaled by the total assets | Compustat |
| ROA | A firm’s profitability: calculated as its income before extraordinary items scaled by the lagged total assets | Compustat |
| CAPX | The ratio of capital expenditure to total assets*100 | Compustat |
| CashVOLT | Cashflow volatility: the standard deviation of the operating cash flow scaled by the total assets for the previous five years | Compustat |
| SIZE | Natural logarithm of market capitalization | Compustat |
| BSIZE | Natural logarithm of board size | DataStream |
| StockVOLT | Stock volatility: the standard deviation of daily stock returns | CRSP |
| Macro level variables | ||
| GDP | GDP per capita growth (annual %) | https://databank.worldbank.org/ |
| INF | Inflation, GDP deflator (annual %) | https://databank.worldbank.org/ |
| UNEMP | Unemployment, total (% of total labour force) (modelled ILO estimate). | https://databank.worldbank.org/ |
| CoC | Control of corruption estimate from WGI | www.worldbank.org/en/publication/worldwide-governance-indicators |
| GOVEF | Government effectiveness estimate from WGI | www.worldbank.org/en/publication/worldwide-governance-indicators |
| REGQ | Regulatory quality estimate from WGI | www.worldbank.org/en/publication/worldwide-governance-indicators |
| EPU | EPU index by Baker et al. (2016) | www.policyuncertainty.com/ |
| Channel analysis | ||
| CEO_compensation | A dummy variable that takes the value of one if a firm links ESG targets with CEO compensation and takes the value of zero otherwise | DataStream |
| Additional analysis | ||
| Post Paris | A dummy variable that takes the value of one for years after 2015 and takes the value of zero otherwise | Perera et al. (2023) |
| Post GFC | A dummy variable that takes the value of one for post-global financial crisis (years after 2007) and takes the value of zero otherwise | Andrieș and Ursu (2016) |
| Environmental initiatives | A dummy variable that takes the value of one if a firm reports environmental investment initiatives in a given year and takes the value of zero otherwise | DataStream |
| Variable | Variable description and measurement | Source |
|---|---|---|
| Rearranged | DataStream | |
| PRisk | The average firm-level political risk over the four quarters developed by | |
| The market value of assets is scaled by the book value of assets | Compustat | |
| Financial leverage: calculated as the total debt scaled by total assets | Compustat | |
| Research and development expenses: scaled by the total assets | Compustat | |
| A firm’s profitability: calculated as its income before extraordinary items scaled by the lagged total assets | Compustat | |
| The ratio of capital expenditure to total assets*100 | Compustat | |
| CashVOLT | Cashflow volatility: the standard deviation of the operating cash flow scaled by the total assets for the previous five years | Compustat |
| Natural logarithm of market capitalization | Compustat | |
| Natural logarithm of board size | DataStream | |
| StockVOLT | Stock volatility: the standard deviation of daily stock returns | |
| Inflation, | ||
| Unemployment, total (% of total labour force) (modelled | ||
| CoC | Control of corruption estimate from | |
| Government effectiveness estimate from | ||
| Regulatory quality estimate from | ||
| CEO_compensation | A dummy variable that takes the value of one if a firm links | DataStream |
| Post Paris | A dummy variable that takes the value of one for years after 2015 and takes the value of zero otherwise | |
| Post | A dummy variable that takes the value of one for post-global financial crisis (years after 2007) and takes the value of zero otherwise | |
| Environmental initiatives | A dummy variable that takes the value of one if a firm reports environmental investment initiatives in a given year and takes the value of zero otherwise | DataStream |
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