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Does it cost to be sustainable?

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  • Humphrey, Jacquelyn E.
  • Lee, Darren D.
  • Shen, Yaokan
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    Abstract

    We investigate whether firms’ corporate social performance (CSP) ratings impact their performance (cost of capital) and risk. Using a proprietary CSP ratings database, we find no difference in the risk-adjusted performance of UK firms with high and low CSP ratings. Additionally, the firms do not differ in their amount of idiosyncratic risk. We find some evidence of high-ranked firms being larger. The empirical evidence therefore indicates that investors and managers are able to implement a CSP investment or business strategy without incurring any significant financial cost (or benefit) in terms of risk or return.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 18 (2012)
    Issue (Month): 3 ()
    Pages: 626-639

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    Handle: RePEc:eee:corfin:v:18:y:2012:i:3:p:626-639

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    Web page: http://www.elsevier.com/locate/jcorpfin

    Related research

    Keywords: Sustainability; Corporate social performance; Environmental; Social; Governance;

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    References

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    1. James Hawley & Andrew Williams, 2007. "Universal Owners: challenges and opportunities," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(3), pages 415-420, 05.
    2. Hon, Mark T. & Tonks, Ian, 2003. "Momentum in the UK stock market," Journal of Multinational Financial Management, Elsevier, vol. 13(1), pages 43-70, February.
    3. Stephen Brammer & Chris Brooks & Stephen Pavelin, 2006. "Corporate Social Performance and Stock Returns: UK Evidence from Disaggregate Measures," Financial Management, Financial Management Association, vol. 35(3), Autumn.
    4. Krishna Udayasankar, 2008. "Corporate Social Responsibility and Firm Size," Journal of Business Ethics, Springer, vol. 83(2), pages 167-175, December.
    5. Darren D. Lee & Robert W. Faff & Kim Langfield-Smith, 2009. "Revisiting the Vexing Question: Does Superior Corporate Social Performance Lead to Improved Financial Performance?," Australian Journal of Management, Australian School of Business, vol. 34(1), pages 21-49, June.
    6. Herremans, Irene M. & Akathaporn, Parporn & McInnes, Morris, 1993. "An investigation of corporate social responsibility reputation and economic performance," Accounting, Organizations and Society, Elsevier, vol. 18(7-8), pages 587-604.
    7. Jensen, M.C. & Murphy, K.J., 1988. "Performance Pay And Top Management Incentives," Papers 88-04, Rochester, Business - Managerial Economics Research Center.
    8. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    9. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance And Equity Prices," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 107-155, February.
    10. Greg Filbeck & Raymond Gorman & Xin Zhao, 2009. "The "Best Corporate Citizens": Are They Good for Their Shareholders?," The Financial Review, Eastern Finance Association, vol. 44(2), pages 239-262, 05.
    11. Elton, Edwin J & Gruber, Martin J & Blake, Christopher R, 1996. "The Persistence of Risk-Adjusted Mutual Fund Performance," The Journal of Business, University of Chicago Press, vol. 69(2), pages 133-57, April.
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    Cited by:
    1. Janusz Brzeszczyński & Graham McIntosh, 2014. "Performance of Portfolios Composed of British SRI Stocks," Journal of Business Ethics, Springer, vol. 120(3), pages 335-362, March.
    2. Janusz Brzeszczynski & Graham McIntosh, 2012. "Performance of Portfolios Composed of British SRI Stocks," CFI Discussion Papers 1204, Centre for Finance and Investment, Heriot Watt University.
    3. Nandy, Monomita & Lodh, Suman, 2012. "Do banks value the eco-friendliness of firms in their corporate lending decision? Some empirical evidence," International Review of Financial Analysis, Elsevier, vol. 25(C), pages 83-93.
    4. Borghesi, Richard & Houston, Joel F. & Naranjo, Andy, 2014. "Corporate socially responsible investments: CEO altruism, reputation, and shareholder interests," Journal of Corporate Finance, Elsevier, vol. 26(C), pages 164-181.

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