IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v15y2023i13p10046-d1178854.html
   My bibliography  Save this article

An Improved TOPSIS Model Based on Cumulative Prospect Theory: Application to ESG Performance Evaluation of State-Owned Mining Enterprises

Author

Listed:
  • Jiahui Su

    (Department of Economics, University of Southampton, Hampshire SO17 1BJ, UK)

  • Yidi Sun

    (Department of Economics, University of Southampton, Hampshire SO17 1BJ, UK)

Abstract

The aim of this study is to provide a comprehensive decision-making method that can be applied to investment decisions based on the Environmental, Social and Governance (ESG) performance. The study contributes to the existing literature by introducing the CPT-TOPSIS model, a pioneering approach that incorporates the effect of non-rational factors on decision-making results in uncertain conditions by combining cumulative prospect theory (CPT) with the classic TOPSIS model. Moreover, by conducting an application to ESG evaluation on five state-owned mining enterprises in China, the study provides evidence of the effectiveness and improvement offered by the new model in comparison with the classic TOPSISI model and prospect theory TOPSIS (PT-TOPSIS) model. The results suggest that the CPT-TOPSIS model considers risk preferences and probability distortion in the decision-making process, narrows the gap between ESG scores, and makes ESG performance evaluation more realistic.

Suggested Citation

  • Jiahui Su & Yidi Sun, 2023. "An Improved TOPSIS Model Based on Cumulative Prospect Theory: Application to ESG Performance Evaluation of State-Owned Mining Enterprises," Sustainability, MDPI, vol. 15(13), pages 1-20, June.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:13:p:10046-:d:1178854
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/15/13/10046/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/15/13/10046/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kılıç, Yunus & Destek, Mehmet Akif & Cevik, Emrah Ismail & Bugan, Mehmet Fatih & Korkmaz, Oya & Dibooglu, Sel, 2022. "Return and Risk Spillovers between ESG Global Index and Stock Markets: Evidence from Time and Frequency Analysis," MPRA Paper 117557, University Library of Munich, Germany.
    2. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    3. Biais, Bruno & Shadur, Raphael, 2000. "Darwinian selection does not eliminate irrational traders," European Economic Review, Elsevier, vol. 44(3), pages 469-490, March.
    4. Rui Albuquerque & Yrjö Koskinen & Chendi Zhang, 2019. "Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence," Management Science, INFORMS, vol. 65(10), pages 4451-4469, October.
    5. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    6. Karl V. Lins & Henri Servaes & Ane Tamayo, 2017. "Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis," Journal of Finance, American Finance Association, vol. 72(4), pages 1785-1824, August.
    7. Bilbao-Terol, Amelia & Arenas-Parra, Mar & Cañal-Fernández, Verónica & Antomil-Ibias, José, 2014. "Using TOPSIS for assessing the sustainability of government bond funds," Omega, Elsevier, vol. 49(C), pages 1-17.
    8. Tang, Pengcheng & Yang, Shuxiang & Yang, Shuwang, 2020. "How to design corporate governance structures to enhance corporate social responsibility in China's mining state-owned enterprises?," Resources Policy, Elsevier, vol. 66(C).
    9. Agnese, Paolo & Giacomini, Emanuela, 2023. "Bank's funding costs: Do ESG factors really matter?," Finance Research Letters, Elsevier, vol. 51(C).
    10. Gregory, Richard Paul, 2022. "ESG activities and firm cash flow," Global Finance Journal, Elsevier, vol. 52(C).
    11. Cai, Ye & Pan, Carrie H. & Statman, Meir, 2016. "Why do countries matter so much in corporate social performance?," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 591-609.
    12. Min Wang & Xianli Zhao & Qunxi Gong & Zhigeng Ji, 2019. "Measurement of Regional Green Economy Sustainable Development Ability Based on Entropy Weight-Topsis-Coupling Coordination Degree—A Case Study in Shandong Province, China," Sustainability, MDPI, vol. 11(1), pages 1-18, January.
    13. Chen, Hong-Yi & Yang, Sharon S., 2020. "Do Investors exaggerate corporate ESG information? Evidence of the ESG momentum effect in the Taiwanese market," Pacific-Basin Finance Journal, Elsevier, vol. 63(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thomas J. Brennan & Andrew W. Lo & Ruixun Zhang, 2018. "Variety Is the Spice of Life: Irrational Behavior as Adaptation to Stochastic Environments," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 8(03), pages 1-39, September.
    2. Gillan, Stuart L. & Koch, Andrew & Starks, Laura T., 2021. "Firms and social responsibility: A review of ESG and CSR research in corporate finance," Journal of Corporate Finance, Elsevier, vol. 66(C).
    3. Lin, Xiaowei & Li, Ao & Xu, Yonghao & Ding, Zijun, 2023. "Does internal whistleblowing build more socially responsible firms？," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 197-214.
    4. Ni, Yinan & Sun, Yanfei, 2023. "Environmental, social, and governance premium in Chinese stock markets," Global Finance Journal, Elsevier, vol. 55(C).
    5. Qian, Kun & Shi, Bingjie & Song, Yunling & Wu, Hao, 2023. "ESG performance and loan contracting in an emerging market," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    6. Bhattacherjee, Purba & Mishra, Sibanjan & Kang, Sang Hoon, 2023. "Does market sentiment and global uncertainties influence ESG-oil nexus? A time-frequency analysis," Resources Policy, Elsevier, vol. 86(PA).
    7. Hooi Hooi Lean & Fabio Pizzutilo, 2021. "Performances and risk of socially responsible investments across regions during crisis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3556-3568, July.
    8. Liu, Xufeng & Wan, Die, 2023. "Retail investor trading and ESG pricing in China," Research in International Business and Finance, Elsevier, vol. 65(C).
    9. Zhang, Ning & Zhang, Yue & Zong, Zhe, 2023. "Fund ESG performance and downside risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 86(C).
    10. van den Bergh, J.C.J.M. & Botzen, W.J.W., 2015. "Monetary valuation of the social cost of CO2 emissions: A critical survey," Ecological Economics, Elsevier, vol. 114(C), pages 33-46.
    11. Shoji, Isao & Kanehiro, Sumei, 2016. "Disposition effect as a behavioral trading activity elicited by investors' different risk preferences," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 104-112.
    12. Jonathan Meng & Feng Fu, 2020. "Understanding Gambling Behavior and Risk Attitudes Using Cryptocurrency-based Casino Blockchain Data," Papers 2008.05653, arXiv.org, revised Aug 2020.
    13. Daniel Fonseca Costa & Francisval Carvalho & Bruno César Moreira & José Willer Prado, 2017. "Bibliometric analysis on the association between behavioral finance and decision making with cognitive biases such as overconfidence, anchoring effect and confirmation bias," Scientometrics, Springer;Akadémiai Kiadó, vol. 111(3), pages 1775-1799, June.
    14. Boone, Jan & Sadrieh, Abdolkarim & van Ours, Jan C., 2009. "Experiments on unemployment benefit sanctions and job search behavior," European Economic Review, Elsevier, vol. 53(8), pages 937-951, November.
    15. Castro, Luciano de & Galvao, Antonio F. & Kim, Jeong Yeol & Montes-Rojas, Gabriel & Olmo, Jose, 2022. "Experiments on portfolio selection: A comparison between quantile preferences and expected utility decision models," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 97(C).
    16. Jos'e Cl'audio do Nascimento, 2019. "Behavioral Biases and Nonadditive Dynamics in Risk Taking: An Experimental Investigation," Papers 1908.01709, arXiv.org, revised Apr 2023.
    17. Francesco GUALA, 2017. "Preferences: Neither Behavioural nor Mental," Departmental Working Papers 2017-05, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    18. Bin Zou, 2017. "Optimal Investment In Hedge Funds Under Loss Aversion," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 20(03), pages 1-32, May.
    19. Itzhak Gilboa & Andrew Postlewaite & Larry Samuelson & David Schmeidler, 2019. "What are axiomatizations good for?," Theory and Decision, Springer, vol. 86(3), pages 339-359, May.
    20. Wiafe, Osei K. & Basu, Anup K. & Chen, En Te, 2020. "Portfolio choice after retirement: Should self-annuitisation strategies hold more equities?," Economic Analysis and Policy, Elsevier, vol. 65(C), pages 241-255.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:15:y:2023:i:13:p:10046-:d:1178854. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.