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ESG complementarities in the US economy

Duygun, Meryem; Hall, Stephen; Kenjegalieva, Aliya; Kenjegaliev, Amangeldi

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Authors

MERYEM DUYGUN Meryem.Duygun@nottingham.ac.uk
Aviva Chair in Risk and Insurance

Stephen Hall

Aliya Kenjegalieva

Amangeldi Kenjegaliev



Abstract

This paper investigates ESG from the perspective of changes in input elasticities of substitution and complementarity. Rather than compute these elasticities from the cost function, we compute them from the Input Distance Function (IDF). Our data are from Refinitiv Eikon Datastream database. We focus on the US economy due to her global role in the world economy and hence spillover effects of uncertainties on the rest of the world. The data consist of 5,798 companies comprising 38 US industries that span for 12 years from 2009 to 2020 and include: (i) financial data on sales, capital and employees; (ii) two financial ratios and (iii) three main ESG indicators. We compute Antonelli Elasticity of Complementarity (AEC) and Allen-Uzawa Elasticity of Substitution (AES) from the translog of IDF function. We find that the standard inputs have positive AEC elasticities; however, ESG cross-elasticities exhibit negative signs, classifying them as q-substitutes. Therefore, an increase in one of the ESG values leads to a decrease in the marginal value of the other. On the other hand, AES elasticities have a negative sign only for the Governance-Environment “doublet'; the rest of the pairs are positive implying that they are p-complements.

Citation

Duygun, M., Hall, S., Kenjegalieva, A., & Kenjegaliev, A. (2022). ESG complementarities in the US economy. European Journal of Finance, https://doi.org/10.1080/1351847x.2022.2157300

Journal Article Type Article
Acceptance Date Dec 5, 2022
Online Publication Date Dec 28, 2022
Publication Date Dec 28, 2022
Deposit Date Apr 27, 2023
Publicly Available Date Mar 29, 2024
Journal European Journal of Finance
Print ISSN 1351-847X
Electronic ISSN 1466-4364
Publisher Informa UK Limited
Peer Reviewed Peer Reviewed
DOI https://doi.org/10.1080/1351847x.2022.2157300
Keywords ESG; Input distance function; complementarity/substitution; US economy JEL codes: C10; C80 D24 F41; F64
Public URL https://nottingham-repository.worktribe.com/output/20003282
Publisher URL https://www.tandfonline.com/doi/full/10.1080/1351847X.2022.2157300
Additional Information Peer Review Statement: The publishing and review policy for this title is described in its Aims & Scope.; Aim & Scope: http://www.tandfonline.com/action/journalInformation?show=aimsScope&journalCode=rejf20; Received: 2022-01-28; Accepted: 2022-12-05; Published: 2022-12-28

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