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Does it cost to be sustainable?

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  • Humphrey, Jacquelyn E.
  • Lee, Darren D.
  • Shen, Yaokan

Abstract

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.

Suggested Citation

  • Humphrey, Jacquelyn E. & Lee, Darren D. & Shen, Yaokan, 2012. "Does it cost to be sustainable?," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 626-639.
  • Handle: RePEc:eee:corfin:v:18:y:2012:i:3:p:626-639 DOI: 10.1016/j.jcorpfin.2012.03.002
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    References listed on IDEAS

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    1. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    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.
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    Cited by:

    1. Borghesi, Richard & Houston, Joel F. & Naranjo, Andy, 2014. "Corporate socially responsible investments: CEO altruism, reputation, and shareholder interests," Journal of Corporate Finance, Elsevier, pages 164-181.
    2. Halbritter, Gerhard & Dorfleitner, Gregor, 2015. "The wages of social responsibility — where are they? A critical review of ESG investing," Review of Financial Economics, Elsevier, pages 25-35.
    3. Leonardo Becchetti & Rocco Ciciretti & Ambrogio D'Alò, 2016. "Fishing the Corporate Social Responsibility Risk Factors," CEIS Research Paper 368, Tor Vergata University, CEIS, revised 07 Feb 2017.
    4. Benjamin R. Auer, 2016. "Do Socially Responsible Investment Policies Add or Destroy European Stock Portfolio Value?," Journal of Business Ethics, Springer, pages 381-397.
    5. Amama Shaukat & Yan Qiu & Grzegorz Trojanowski, 2016. "Board Attributes, Corporate Social Responsibility Strategy, and Corporate Environmental and Social Performance," Journal of Business Ethics, Springer, pages 569-585.
    6. Koh, SzeKee & Durand, Robert B. & Limkriangkrai, Manapon, 2015. "The value of Saints and the price of Sin," Pacific-Basin Finance Journal, Elsevier, pages 56-72.
    7. Janusz Brzeszczyński & Graham McIntosh, 2014. "Performance of Portfolios Composed of British SRI Stocks," Journal of Business Ethics, Springer, pages 335-362.
    8. Radojko LUKIÆ, 2013. "Sustainable Cost Management in Retail," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 14(2), pages 268-280, May.
    9. Graham McIntosh, 2016. "Socially Responsible Investment and Market Performance: The Case of Energy and Resource Firms," Cambridge Working Papers in Economics 1609, Faculty of Economics, University of Cambridge.
    10. Cai, Ye & Pan, Carrie H. & Statman, Meir, 2016. "Why do countries matter so much in corporate social performance?," Journal of Corporate Finance, Elsevier, pages 591-609.
    11. Becchetti, Leonardo & Ciciretti, Rocco & Hasan, Iftekhar, 2015. "Corporate social responsibility, stakeholder risk, and idiosyncratic volatility," Journal of Corporate Finance, Elsevier, pages 297-309.
    12. María del Mar Miralles-Quirós & José Luis Miralles-Quirós, 2017. "Improving Diversification Opportunities for Socially Responsible Investors," Journal of Business Ethics, Springer, pages 339-351.
    13. Rocco Ciciretti & Ambrogio Dalò & Lammertjan Dam, 2017. "The Price of Taste for Socially Responsible Investment," CEIS Research Paper 413, Tor Vergata University, CEIS, revised 28 Jul 2017.
    14. McCarthy, Scott & Oliver, Barry & Song, Sizhe, 2017. "Corporate social responsibility and CEO confidence," Journal of Banking & Finance, Elsevier, vol. 75(C), pages 280-291.
    15. Mahfuja Malik, 2015. "Value-Enhancing Capabilities of CSR: A Brief Review of Contemporary Literature," Journal of Business Ethics, Springer, pages 419-438.
    16. Crifo, Patricia & Forget, Vanina D. & Teyssier, Sabrina, 2015. "The price of environmental, social and governance practice disclosure: An experiment with professional private equity investors," Journal of Corporate Finance, Elsevier, pages 168-194.
    17. Nandy, Monomita & Lodh, Suman, 2012. "Do banks value the eco-friendliness of firms in their corporate lending decision? Some empirical evidence," International Review of Financial Analysis, Elsevier, vol. 25(C), pages 83-93.
    18. Ho, Simon S.M. & Li, Annie Yuansha & Tam, Kinsun & Tong, Jamie Y., 2016. "Ethical image, corporate social responsibility, and R&D valuation," Pacific-Basin Finance Journal, Elsevier, pages 335-348.

    More about this item

    Keywords

    Sustainability; Corporate social performance; Environmental; Social; Governance;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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