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How does ESG affect the financial performance of oil and gas companies relative to traditional firm characteristics? - An empirical examination of oil and gas companies in Europe

Danielsen, Atle Alexander; Lilland, Jesper Fedde
Master thesis
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https://hdl.handle.net/11250/2825667
Utgivelsesdato
2021
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Samlinger
  • Master of Science [1116]
Sammendrag
This thesis investigates potential indicators of financial performance on European

oil and gas companies. With the use of panel data regressions, it seeks to detect

potential significant effects of traditional firm characteristics and various ESG

subcategories on financial performance. The companies in our sample are

observed monthly from January 2011 to March 2021. We find that previous

research is conflicting and many of the studies detect low statistical significance

between ESG scores and financial performance. In this thesis, financial

performance is measured by three different performance indicators; monthly

change in market capitalization, return on equity, and return on assets. The

traditional firm characteristics we implement in our regressions are firm size,

leverage, firm age, and market-to-book ratio. In addition to these characteristics,

we include regressions with both overall ESG factors (Environmental, Social,

Governance) and ten different subcategories of the overall ESG factors.

The result of our research suggests that commonly used firm characteristics are

more significant than ESG scores in relation to financial performance. Firm size

has the most substantial positive effect on financial performance, while leverage

and firm age has significant negative effects on financial performance. Although

we find that overall ESG scores do not have any significant effect on our

performance variables, we find that some of the ESG subcategories have some

significant effect. This research concludes that the overall effect of ESG scores on

financial performance is negative for European oil and gas companies as the

Human Rights score is the only subcategory that indicates a weak positive

significant effect. It seems that demanding ESG implementations and ESG

measures that cause major restructuring may appear to be a trade-off against

companies’ financial performance, although the trade-off could prove to be

positive for future financial performance.
Beskrivelse
Masteroppgave(MSc) in Master of Science in Business, Finance - Handelshøyskolen BI, 2021
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Handelshøyskolen BI

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