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ESG Impact on Market Performance of Firms: International Evidence

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  • Hélène Pasquini-Descomps
  • Jean-Michel Sahut

Abstract

This study investigates how news-based scores in Environmental, Social and Corporate governance (ESG)will influence the monthly market return in the Swiss, US and UK stock markets. We are using a four-factor based linear model following during the 2007-2011 period, as well as a non-parametric model for Switzerland only. For market returns, we find that the variation of the Global ESG score is a significant but slightly negative factor of a stock’s monthly performance in the UK, but not significant in the US and Switzerland. The changes in sub-categories ratings (for instance, Governance, Environment, Labor…) exhibit a small but significant influence over the stock’s performance only during limited periods or on limited sectors, which varies among the countries. The non-parametric kernel regression shows that the function linking a stock’s performance to its ESG news–based scores’ changes is probably not linear.

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Bibliographic Info

Paper provided by Department of Research, Ipag Business School in its series Working Papers with number 2014-212.

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Length: 31 pages
Date of creation: 10 Apr 2014
Date of revision:
Handle: RePEc:ipg:wpaper:2014-212

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Keywords: ESG; Rating; Governance; Performance; Return; Kernel Regression.;

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  1. Graff Zivin Joshua & Small Arthur, 2005. "A Modigliani-Miller Theory of Altruistic Corporate Social Responsibility," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-21, May.
  2. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, Elsevier, vol. 9(1), pages 3-18, March.
  3. Teoh, Siew Hong & Welch, Ivo & Wazzan, C Paul, 1999. "The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott," The Journal of Business, University of Chicago Press, vol. 72(1), pages 35-89, January.
  4. Edmans, Alex, 2011. "Does the stock market fully value intangibles? Employee satisfaction and equity prices," Journal of Financial Economics, Elsevier, Elsevier, vol. 101(3), pages 621-640, September.
  5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(4), pages 305-360, October.
  6. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, American Finance Association, vol. 52(1), pages 57-82, March.
  7. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, Elsevier, vol. 5(2), pages 147-175, November.
  8. El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck C.Y. & Mishra, Dev R., 2011. "Does corporate social responsibility affect the cost of capital?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(9), pages 2388-2406, September.
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