IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v8y2016i3p276-d65900.html
   My bibliography  Save this article

Corporate Sustainability and Shareholder Wealth—Evidence from British Companies and Lessons from the Crisis

Author

Listed:
  • Fernando Gómez-Bezares

    (Deusto Business School, University of Deusto, 48014 Bilbao, Spain)

  • Wojciech Przychodzen

    (Deusto Business School, University of Deusto, 48014 Bilbao, Spain)

  • Justyna Przychodzen

    (Laureate Online Education, 1101 BH Amsterdam, The Netherlands)

Abstract

This study examines the impact of corporate sustainability (CS) on stock market returns for FTSE 350 companies over the period 2006–2012. We find that an investment strategy that bought shares in companies with balanced financial, social, and environmental activities would have earned an annual four-factor alpha for a value-weighted portfolio of 3.54% per year during the sample period and 2.98% above industry benchmarks. In addition, we find that CS is negatively correlated with stock return volatility, and investing in companies with CS not only generates higher returns during peak phases, but also diminishes shareholders’ losses during bear phases. We have also carried out an additional, out-of-the-sample analysis for the years 2013–2015 which confirmed our results.

Suggested Citation

  • Fernando Gómez-Bezares & Wojciech Przychodzen & Justyna Przychodzen, 2016. "Corporate Sustainability and Shareholder Wealth—Evidence from British Companies and Lessons from the Crisis," Sustainability, MDPI, vol. 8(3), pages 1-22, March.
    • Handle: RePEc:gam:jsusta:v:8:y:2016:i:3:p:276-:d:65900
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/8/3/276/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/8/3/276/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Klapper, Leora F. & Love, Inessa, 2004. "Corporate governance, investor protection, and performance in emerging markets," Journal of Corporate Finance, Elsevier, vol. 10(5), pages 703-728, November.
    2. Kaptein, Muel & Wempe, Johan, 2002. "The Balanced Company: A Theory of Corporate Integrity," OUP Catalogue, Oxford University Press, number 9780199255511.
    3. Shih‐Fang Lo & Her‐Jiun Sheu, 2007. "Is Corporate Sustainability a Value‐Increasing Strategy for Business?," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(2), pages 345-358, March.
    4. Shameek Konar & Mark A. Cohen, 2001. "Does The Market Value Environmental Performance?," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 281-289, May.
    5. Bolton, Gary E. & Ockenfels, Axel & Stauf, Julia, 2015. "Social responsibility promotes conservative risk behavior," European Economic Review, Elsevier, vol. 74(C), pages 109-127.
    6. David Campbell, 2003. "Intra‐ and intersectoral effects in environmental disclosures: evidence for legitimacy theory?," Business Strategy and the Environment, Wiley Blackwell, vol. 12(6), pages 357-371, November.
    7. Heinkel, Robert & Kraus, Alan & Zechner, Josef, 2001. "The Effect of Green Investment on Corporate Behavior," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(4), pages 431-449, December.
    8. Aerts, Walter, 2005. "Picking up the pieces: impression management in the retrospective attributional framing of accounting outcomes," Accounting, Organizations and Society, Elsevier, vol. 30(6), pages 493-517, August.
    9. Carroll, Archie B., 1991. "The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders," Business Horizons, Elsevier, vol. 34(4), pages 39-48.
    10. Denis Cormier & Michel Magnan & Barbara Van Velthoven, 2005. "Environmental disclosure quality in large German companies: Economic incentives, public pressures or institutional conditions?," European Accounting Review, Taylor & Francis Journals, vol. 14(1), pages 3-39.
    11. Stewart Jones & Geoff Frost & Janice Loftus & Sandra Laan, 2007. "An Empirical Examination of the Market Returns and Financial Performance of Entities Engaged in Sustainability Reporting," Australian Accounting Review, CPA Australia, vol. 17(41), pages 78-87, March.
    12. Lee, Ki-Hoon & Farzipoor Saen, Reza, 2012. "Measuring corporate sustainability management: A data envelopment analysis approach," International Journal of Production Economics, Elsevier, vol. 140(1), pages 219-226.
    13. Bouslah, Kais & Kryzanowski, Lawrence & M’Zali, Bouchra, 2013. "The impact of the dimensions of social performance on firm risk," Journal of Banking & Finance, Elsevier, vol. 37(4), pages 1258-1273.
    14. Rosenberg, Joshua V. & Engle, Robert F., 2002. "Empirical pricing kernels," Journal of Financial Economics, Elsevier, vol. 64(3), pages 341-372, June.
    15. Hediger, Werner, 2010. "Welfare and capital-theoretic foundations of corporate social responsibility and corporate sustainability," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(4), pages 518-526, August.
    16. Merton, Robert C, 1987. "A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    17. Roger L. Burritt & Stefan Schaltegger, 2010. "Sustainability accounting and reporting: fad or trend?," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 23(7), pages 829-846, September.
    18. Jeffrey S. Harrison & Douglas A. Bosse & Robert A. Phillips, 2010. "Managing for stakeholders, stakeholder utility functions, and competitive advantage," Strategic Management Journal, Wiley Blackwell, vol. 31(1), pages 58-74, January.
    19. M. López & Arminda Garcia & Lazaro Rodriguez, 2007. "Sustainable Development and Corporate Performance: A Study Based on the Dow Jones Sustainability Index," Journal of Business Ethics, Springer, vol. 75(3), pages 285-300, October.
    20. Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "Socially responsible investments: Institutional aspects, performance, and investor behavior," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1723-1742, September.
    21. Giuseppe Ioppolo & Stefano Cucurachi & Roberta Salomone & Giuseppe Saija & Lei Shi, 2016. "Sustainable Local Development and Environmental Governance: A Strategic Planning Experience," Sustainability, MDPI, vol. 8(2), pages 1-16, February.
    22. Stephen Brammer & Chris Brooks & Stephen Pavelin, 2006. "Corporate Social Performance and Stock Returns: UK Evidence from Disaggregate Measures," Financial Management, Financial Management Association International, vol. 35(3), pages 97-116, September.
    23. Cellier, Alexis & Chollet, Pierre, 2016. "The effects of social ratings on firm value," Research in International Business and Finance, Elsevier, vol. 36(C), pages 656-683.
    24. Fisher-Vanden, Karen & Thorburn, Karin S., 2011. "Voluntary corporate environmental initiatives and shareholder wealth," Journal of Environmental Economics and Management, Elsevier, vol. 62(3), pages 430-445.
    25. Peter M. Clarkson & Michael B. Overell & Larelle Chapple, 2011. "Environmental Reporting and its Relation to Corporate Environmental Performance," Abacus, Accounting Foundation, University of Sydney, vol. 47(1), pages 27-60, March.
    26. Rob Gray & Mohammed Javad & David M. Power & C. Donald Sinclair, 2001. "Social and Environmental Disclosure and Corporate Characteristics: A Research Note and Extension," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(3-4), pages 327-356.
    27. Stephen Brammer & Andrew Millington, 2008. "Does it pay to be different? An analysis of the relationship between corporate social and financial performance," Strategic Management Journal, Wiley Blackwell, vol. 29(12), pages 1325-1343, December.
    28. Amir Barnea & Amir Rubin, 2010. "Corporate Social Responsibility as a Conflict Between Shareholders," Journal of Business Ethics, Springer, vol. 97(1), pages 71-86, November.
    29. Giambona, Erasmo & Golec, Joseph, 2009. "Mutual fund volatility timing and management fees," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 589-599, April.
    30. Graham, John R. & Harvey, Campbell R. & Rajgopal, Shiva, 2005. "The economic implications of corporate financial reporting," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 3-73, December.
    31. Helen Tregidga & Markus J. Milne, 2006. "From sustainable management to sustainable development: a longitudinal analysis of a leading New Zealand environmental reporter," Business Strategy and the Environment, Wiley Blackwell, vol. 15(4), pages 219-241, July.
    32. Rob Gray & Mohammed Javad & David M. Power & C. Donald Sinclair, 2001. "Social and Environmental Disclosure and Corporate Characteristics: A Research Note and Extension," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(3‐4), pages 327-356, April.
    33. Darren D. Lee & Robert W. Faff, 2009. "Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective," The Financial Review, Eastern Finance Association, vol. 44(2), pages 213-237, May.
    34. Fuller, Donald A. & Ottman, Jacquelyn A., 2004. "Moderating unintended pollution: the role of sustainable product design," Journal of Business Research, Elsevier, vol. 57(11), pages 1231-1238, November.
    35. Marcus Wagner & Stefan Schaltegger, 2004. "The Effect of Corporate Environmental Strategy Choice and Environmental Performance on Competitiveness and Economic Performance," Post-Print hal-00279008, HAL.
    36. Ioannis Oikonomou & Chris Brooks & Stephen Pavelin, 2012. "The Impact of Corporate Social Performance on Financial Risk and Utility: A Longitudinal Analysis," Financial Management, Financial Management Association International, vol. 41(2), pages 483-515, June.
    37. Torbjörn Tagesson & Veronica Blank & Pernilla Broberg & Sven‐Olof Collin, 2009. "What explains the extent and content of social and environmental disclosures on corporate websites: a study of social and environmental reporting in Swedish listed corporations," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 16(6), pages 352-364, November.
    38. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    39. Foo Ho & Hui-Ming Wang & Scott Vitell, 2012. "A Global Analysis of Corporate Social Performance: The Effects of Cultural and Geographic Environments," Journal of Business Ethics, Springer, vol. 107(4), pages 423-433, June.
    40. Edmans, Alex, 2011. "Does the stock market fully value intangibles? Employee satisfaction and equity prices," Journal of Financial Economics, Elsevier, vol. 101(3), pages 621-640, September.
    41. Weber, Manuela, 2008. "The business case for corporate social responsibility: A company-level measurement approach for CSR," European Management Journal, Elsevier, vol. 26(4), pages 247-261, August.
    42. Tracy Artiach & Darren Lee & David Nelson & Julie Walker, 2010. "The determinants of corporate sustainability performance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 50(1), pages 31-51, March.
    43. Andreas Christofi & Petros Christofi & Seleshi Sisaye, 2012. "Corporate sustainability: historical development and reporting practices," Management Research Review, Emerald Group Publishing Limited, vol. 35(2), pages 157-172, January.
    44. Nicole Darnall & Irene Henriques & Perry Sadorsky, 2010. "Adopting Proactive Environmental Strategy: The Influence of Stakeholders and Firm Size," Journal of Management Studies, Wiley Blackwell, vol. 47(6), pages 1072-1094, September.
    45. Alan Murray & Donald Sinclair & David Power & Rob Gray, 2006. "Do financial markets care about social and environmental disclosure?: Further evidence and exploration from the UK," Accounting, Auditing & Accountability Journal, Emerald Group Publishing, vol. 19(2), pages 228-255, February.
    46. Lang, M & Lundholm, R, 1993. "Cross-Sectional Determinants Of Analyst Ratings Of Corporate Disclosures," Journal of Accounting Research, Wiley Blackwell, vol. 31(2), pages 246-271.
    47. Wagner, Marcus & Schaltegger, Stefan, 2004. "The Effect of Corporate Environmental Strategy Choice and Environmental Performance on Competitiveness and Economic Performance:: An Empirical Study of EU Manufacturing," European Management Journal, Elsevier, vol. 22(5), pages 557-572, October.
    48. Alexis Cellier & Pierre Chollet, 2016. "The effects of social ratings on firm value," Post-Print hal-02009558, HAL.
    49. Mao, James C.T., 1971. "Security Pricing in an Imperfect Capital Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 6(4), pages 1105-1116, September.
    50. Craig Deegan, 2004. "Environmental disclosures and share prices—a discussion about efforts to study this relationship," Accounting Forum, Taylor & Francis Journals, vol. 28(1), pages 87-97, March.
    51. Daniel W. Elfenbein & Brian McManus, 2010. "A Greater Price for a Greater Good? Evidence That Consumers Pay More for Charity-Linked Products," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 28-60, May.
    52. Amy J. Hillman & Gerald D. Keim, 2001. "Shareholder value, stakeholder management, and social issues: what's the bottom line?," Strategic Management Journal, Wiley Blackwell, vol. 22(2), pages 125-139, February.
    53. Paul C. Godfrey & Craig B. Merrill & Jared M. Hansen, 2009. "The relationship between corporate social responsibility and shareholder value: an empirical test of the risk management hypothesis," Strategic Management Journal, Wiley Blackwell, vol. 30(4), pages 425-445, April.
    54. Robert D. Klassen & Curtis P. McLaughlin, 1996. "The Impact of Environmental Management on Firm Performance," Management Science, INFORMS, vol. 42(8), pages 1199-1214, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. María Mar Miralles-Quirós & José Luis Miralles-Quirós & Luis Miguel Valente Gonçalves, 2018. "The Value Relevance of Environmental, Social, and Governance Performance: The Brazilian Case," Sustainability, MDPI, vol. 10(3), pages 1-15, February.
    2. Jesús Manuel Palma-Ruiz & Julen Castillo-Apraiz & Raúl Gómez-Martínez, 2020. "Socially Responsible Investing as a Competitive Strategy for Trading Companies in Times of Upheaval Amid COVID-19: Evidence from Spain," IJFS, MDPI, vol. 8(3), pages 1-13, July.
    3. Camelia Oprean-Stan & Ionica Oncioiu & Iulia Cristina Iuga & Sebastian Stan, 2020. "Impact of Sustainability Reporting and Inadequate Management of ESG Factors on Corporate Performance and Sustainable Growth," Sustainability, MDPI, vol. 12(20), pages 1-31, October.
    4. Justyna Przychodzen & Fernando Gómez-Bezares & Wojciech Przychodzen & Mikel Larreina, 2016. "ESG Issues among Fund Managers—Factors and Motives," Sustainability, MDPI, vol. 8(10), pages 1-19, October.
    5. Guillermo Badía & Vicente Pina & Lourdes Torres, 2019. "Financial Performance of Government Bond Portfolios Based on Environmental, Social and Governance Criteria," Sustainability, MDPI, vol. 11(9), pages 1-13, April.
    6. Md Harun Or Rosid & Zhao Xuefeng & Sk Alamgir Hossain & Mohammad Raihanul Hasan & Md Reza Sultanuzzaman, 2021. "The Impact of GDP on Cross-Country Efficiency in Wealth Maximization: a Joint Analysis Through the Stochastic Frontier and Generalized Method of Moments," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 11(1), pages 1-6.
    7. Mollie Painter-Morland & Geert Demuijnck & Sara Ornati, 2017. "Sustainable Development and Well-Being: A Philosophical Challenge," Journal of Business Ethics, Springer, vol. 146(2), pages 295-311, December.
    8. Tat Dat Bui & Mohd Helmi Ali & Feng Ming Tsai & Mohammad Iranmanesh & Ming-Lang Tseng & Ming K Lim, 2020. "Challenges and Trends in Sustainable Corporate Finance: A Bibliometric Systematic Review," JRFM, MDPI, vol. 13(11), pages 1-26, October.
    9. Franzen, Philipp, 2022. "Einflussanalyse des Dow Jones Sustainability Europe Index auf den Unternehmenswert: Eine Ereignisstudie," Wismar Discussion Papers 02/2022, Hochschule Wismar, Wismar Business School.
    10. Ana María Gómez-Bezares & Fernando Gómez-Bezares, 2020. "Catholic Social Thought and Sustainability. Ethical and Economic Alignment," JRFM, MDPI, vol. 14(1), pages 1-22, December.
    11. Salvatore Loprevite & Bruno Ricca & Daniela Rupo, 2018. "Performance Sustainability and Integrated Reporting: Empirical Evidence from Mandatory and Voluntary Adoption Contexts," Sustainability, MDPI, vol. 10(5), pages 1-15, April.
    12. Bryan Schmutz & Minoo Tehrani & Lawrence Fulton & Andreas W. Rathgeber, 2020. "Dow Jones Sustainability Indices, Do They Make a Difference? The U.S. and the European Union Companies," Sustainability, MDPI, vol. 12(17), pages 1-15, August.
    13. Joanna Lizińska & Leszek Czapiewski, 2018. "Towards Economic Corporate Sustainability in Reporting: What Does Earnings Management around Equity Offerings Mean for Long-Term Performance?," Sustainability, MDPI, vol. 10(12), pages 1-23, November.
    14. Estibaliz Goicoechea & Fernando Gómez-Bezares & José Vicente Ugarte, 2019. "Integrated Reporting Assurance: Perceptions of Auditors and Users in Spain," Sustainability, MDPI, vol. 11(3), pages 1-19, January.

    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. Kais Bouslah & Lawrence Kryzanowski & Bouchra M’Zali, 2018. "Social Performance and Firm Risk: Impact of the Financial Crisis," Journal of Business Ethics, Springer, vol. 149(3), pages 643-669, May.
    2. Bouslah, Kais & Kryzanowski, Lawrence & M’Zali, Bouchra, 2013. "The impact of the dimensions of social performance on firm risk," Journal of Banking & Finance, Elsevier, vol. 37(4), pages 1258-1273.
    3. Cellier, Alexis & Chollet, Pierre, 2016. "The effects of social ratings on firm value," Research in International Business and Finance, Elsevier, vol. 36(C), pages 656-683.
    4. Derwall, Jeroen & Koedijk, Kees & Ter Horst, Jenke, 2011. "A tale of values-driven and profit-seeking social investors," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2137-2147, August.
    5. Oikonomou, Ioannis & Platanakis, Emmanouil & Sutcliffe, Charles, 2018. "Socially responsible investment portfolios: Does the optimization process matter?," The British Accounting Review, Elsevier, vol. 50(4), pages 379-401.
    6. Drobetz, Wolfgang & Merikas, Andreas & Merika, Anna & Tsionas, Mike G., 2014. "Corporate social responsibility disclosure: The case of international shipping," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 71(C), pages 18-44.
    7. Paola Brighi & Antonio Carlo Francesco Della Bina & Valeria Venturelli, 2022. "Do ESG Investments Mitigate ESG Controversies? Evidence From International Data," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0084, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    8. Felipe Arias Fogliano de Souza Cunha & Erick Meira & Renato J. Orsato, 2021. "Sustainable finance and investment: Review and research agenda," Business Strategy and the Environment, Wiley Blackwell, vol. 30(8), pages 3821-3838, December.
    9. Remmer Sassen & Anne-Kathrin Hinze & Inga Hardeck, 2016. "Impact of ESG factors on firm risk in Europe," Journal of Business Economics, Springer, vol. 86(8), pages 867-904, November.
    10. Waymond Rodgers & Mouza Al Habsi & George Gamble, 2019. "Sustainability and Firm Performance: A Review and Analysis Using Algorithmic Pathways in the Throughput Model," Sustainability, MDPI, vol. 11(14), pages 1-27, July.
    11. Bai Xue & Zhuang Zhang & Pingli Li, 2020. "Corporate environmental performance, environmental management and firm risk," Business Strategy and the Environment, Wiley Blackwell, vol. 29(3), pages 1074-1096, March.
    12. Tzouvanas, Panagiotis & Kizys, Renatas & Chatziantoniou, Ioannis & Sagitova, Roza, 2020. "Environmental disclosure and idiosyncratic risk in the European manufacturing sector," Energy Economics, Elsevier, vol. 87(C).
    13. Konstantina Kappou & Ioannis Oikonomou, 2016. "Is There a Gold Social Seal? The Financial Effects of Additions to and Deletions from Social Stock Indices," Journal of Business Ethics, Springer, vol. 133(3), pages 533-552, February.
    14. Qiu, Yan & Shaukat, Amama & Tharyan, Rajesh, 2016. "Environmental and social disclosures: Link with corporate financial performance," The British Accounting Review, Elsevier, vol. 48(1), pages 102-116.
    15. Alan Gregory & Rajesh Tharyan & Julie Whittaker, 2014. "Corporate Social Responsibility and Firm Value: Disaggregating the Effects on Cash Flow, Risk and Growth," Journal of Business Ethics, Springer, vol. 124(4), pages 633-657, November.
    16. Eduardo Ortas & Isabel Gallego‐Alvarez & Igor Álvarez Etxeberria, 2015. "Financial Factors Influencing the Quality of Corporate Social Responsibility and Environmental Management Disclosure: A Quantile Regression Approach," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 22(6), pages 362-380, November.
    17. DasGupta, Ranjan & Roy, Arup, 2023. "Firm environmental, social, governance and financial performance relationship contradictions: Insights from institutional environment mediation," Technological Forecasting and Social Change, Elsevier, vol. 189(C).
    18. Dan Daugaard, 2020. "Emerging new themes in environmental, social and governance investing: a systematic literature review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(2), pages 1501-1530, June.
    19. Carsten Albers & Thomas Günther, 2010. "Disclose or not disclose: determinants of social reporting for STOXX Europe 600 firms," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 21(3), pages 323-347, November.
    20. José M. Brotons & Manuel E. Sansalvador, 2020. "The relation between corporate social responsibility certification and financial performance: An empirical study in Spain," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(3), pages 1465-1477, May.

    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:8:y:2016:i:3:p:276-:d:65900. 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.