Stakeholder welfare and firm value

摘要

Using data from the independent social choice investment advisory firm Kinder, Lydenberg, Domini (KLD), we construct a stakeholder welfare score measuring the extent to which firms meet the expectation of their non-shareholder stakeholders (such as employees, customers, communities, and environment), and find it to be associated with positive valuation effects: an increase of 1 in the stakeholder welfare score leads to an increase of 0.587 in Tobin's Q. Furthermore, the valuation effects vary across stakeholders and the aforementioned positive effects are driven by firms' performance on employee relations and environmental issues. These results suggest that stakeholder welfare (in particular, employee welfare and environmental performance) represents intangibles (such as reputation or human capital) crucial for shareholder value creation rather than private benefits managers pursue for their own social or economic needs.