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Stock returns in relation to environmental, social and governance performance: mispricing or compensation for risk?

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  • Manescu, Cristiana

    ()
    (Center for Finance, School of Business, Economics and Law, University of Gothenburg)

Abstract

Using detailed data on seven environmental, social and governance (ESG) attributes for a long panel of large publicly traded U.S. rms during July 1992-June 2008, this study nds that only the community indicator has a positive impact on stock returns and furthermore this e ect is due to mispricing. Additionally, we document a changing e ect of employee relations from positive to negative between July 1992- June 2003 and July 2003- June 2008. The positive impact is found to be due to mispricing, but for the negative impact there is some weak evidence that it is compensation for low non-sustainability risk. A negative impact of human rights and product safety indicators on stock returns in the more recent period has also been found to be due to mispricing. The implications of this study are that certain ESG issues (employee relations in particular) could be priced as risk factors as soon as there is higher information availability for those ESG attributes.

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File URL: http://hdl.handle.net/2077/20998
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Bibliographic Info

Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 376.

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Length: 37 pages
Date of creation: 01 Sep 2009
Date of revision: 01 Mar 2010
Handle: RePEc:hhs:gunwpe:0376

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Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Keywords: responsible investments; risk factor test; market efficiency; four factor model;

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Cited by:
  1. Marco Nicolosi & Stefano Grassi & Elena Stanghellini, 2011. "How to measure Corporate Social Responsibility," Quaderni del Dipartimento di Economia, Finanza e Statistica 96/2011, Università di Perugia, Dipartimento Economia, Finanza e Statistica.

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