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Does it cost to be sustainable?

  • Humphrey, Jacquelyn E.
  • Lee, Darren D.
  • Shen, Yaokan
Registered author(s):

    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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    File URL: http://www.sciencedirect.com/science/article/pii/S0929119912000338
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    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
    Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

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    1. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April.
    2. 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.
    3. 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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    5. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2001. "Corporate Governance and Equity Prices," NBER Working Papers 8449, National Bureau of Economic Research, Inc.
    6. 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.
    7. 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.
    8. 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.
    9. James Hawley & Andrew Williams, 2007. "Universal Owners: challenges and opportunities," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(3), pages 415-420, 05.
    10. 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, 05.
    11. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
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