NGO activism, legitimacy, and shareholder value

Non-governmental organisations (NGOs) have significantly increased attempts at advocacy for corporate policy adoption and responsible business practices. Using a large NGO dataset that comprises approximately 7,000 NGO activist groups on more than 700 environmental, social and governance (ESG) issues all over the world, this study focuses on the motivations of NGO activism and estimates its impact on firm’s management practices and long-term financial performance. Using propensity score matching to select two homogeneous groups of firms that are or are not NGO targets, we find that firms with large size, poor share performance and poor environmental performance are more likely targeted by NGOs. Following one year and two years periods after NGO campaigns, the firm’s environmental performance score on average increases by 2.2 and 2.9, respectively. Based on a quasi-natural experiment that exploits the implementation of mandatory legislative acts on climate change issues in the UK, we find that NGO engaged firms are more responsive to mandatory legislative acts than NGO non- engaged firms, and such responsiveness is shown by improved environmental performance and firm value following the legislative shock