Value or Veneer? Testing the Financial Credibility of ESG Signaling in Emerging Markets

ABSTRACT

The study examines whether ESG adoption reflects genuine corporate strength or symbolic compliance, assessing its financial and signaling impact on market value. Using CRISIL's SEBI‐aligned ESG ratings for 380 Indian listed firms, the analysis investigates the bidirectional relationships between firm fundamentals, ESG adoption, and market outcomes. Findings show that ESG adoption is strategically selective and resource‐contingent: Environmental and governance practices enhance market value when supported by firm size, age, profitability, asset financialization, and market recognition, whereas CSR initiatives often remain symbolic. Industry sensitivity and limited financial flexibility constrain ESG effectiveness. Environmental and governance practices function as value‐creating levers, while CSR remains a discretionary, less material dimension for investors. The study contributes to theory by identifying the boundary conditions of ESG signaling and offers practical guidance for managers and policymakers to align ESG strategies with firm capabilities, promoting meaningful value creation.