Is it Beneficial to be Included in a Sustainability Stock Index? A Panel Data Study for European Firms
This paper empirically examines the effect of the inclusion in one of the most prominent sustainability stock indexes, namely the Dow Jones Sustainability World Index (DJSI World), on corporate financial performance. On the basis of panel data for European firms that were included in the Dow Jones Stoxx 600 Index over time, our micro-econometric analysis confirms the relevance of unobserved firm heterogeneity since the validity of restricted pooled regression models is statistically rejected in favor of random or fixed effects models. As a consequence, the strong positive impacts of the inclusion in the DJSI World on return on assets and Tobin’s Q in pooled regression models become weaker and less robust in the case of return on assets and even insignificant for Tobin’s Q in the flexible panel data models that include unobserved firm heterogeneity. Therefore, we conclude that the application of misspecified panel data approaches, similar to cross-sectional models, can lead to biased parameter estimates and thus to premature conclusions with respect to the impact of corporate sustainability performance on financial performance. Our estimation results can be explained by the high number of confounding financial effects of corporate environmental or social activities. Another explanation for the predominant weak or neutral impacts of the inclusion in the DJSI World could be the composition of this stock index, which is influenced by factors that need not necessarily be directly connected to corporate environmental or social activities.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 52 (2012)
Issue (Month): 3 (July)
|Contact details of provider:|| Web page: http://www.springer.com|
Postal:c/o EAERE Secretariat - Fondazione Eni Enrico Mattei - Isola di San Giorgio Maggiore 8, I-30124 Venice, Italy
Web page: http://www.eaere.org/
More information through EDIRC
|Order Information:||Web: http://www.springer.com/economics/environmental/journal/10640/PS2|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Konar, Shameek & Cohen, Mark A., 1997. "Information As Regulation: The Effect of Community Right to Know Laws on Toxic Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 109-124, January.
- Abagail McWilliams & Donald S. Siegel & Patrick M. Wright, 2006.
"Corporate Social Responsibility: Strategic Implications,"
Journal of Management Studies,
Wiley Blackwell, vol. 43(1), pages 1-18, 01.
- Abagail McWilliams & Donald S. Siegel & Patrick M. Wright, 2005. "Corporate Social Responsibility: Strategic Implications," Rensselaer Working Papers in Economics 0506, Rensselaer Polytechnic Institute, Department of Economics.
- 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.
- Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
- Andrei Shleifer & Robert W. Vishny, 1995. "A Survey of Corporate Governance," Harvard Institute of Economic Research Working Papers 1741, Harvard - Institute of Economic Research.
- Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
- Geoffrey Heal, 2005. "Corporate Social Responsibility: An Economic and Financial Framework," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 30(3), pages 387-409, July.
- Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
- repec:hrv:faseco:30728046 is not listed on IDEAS
- Catherine M. Paul & Donald Siegel, 2006. "Corporate social responsibility and economic performance," Journal of Productivity Analysis, Springer, vol. 26(3), pages 207-211, December.
- Catherine J. Morrison-Paul & Donald S. Siegel, 2006. "Corporate Social Responsibility and Economic Performance," Rensselaer Working Papers in Economics 0605, Rensselaer Polytechnic Institute, Department of Economics.
- Kjetil Telle, 2006. "“It Pays to be Green” – A Premature Conclusion?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 35(3), pages 195-220, November.
- Kjetil Telle & Iulie Aslaksen & Terje Synnestvedt, 2004. ""It pays to be green" - a premature conclusion?," Discussion Papers 394, Statistics Norway, Research Department.
- Bauer, Rob & Koedijk, Kees & Otten, Roger, 2005. "International evidence on ethical mutual fund performance and investment style," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1751-1767, July.
- Khanna, Madhu & Quimio, Wilma Rose H. & Bojilova, Dora, 1998. "Toxics Release Information: A Policy Tool for Environmental Protection," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 243-266, November.
- Michael Schröder, 2007. "Is there a Difference? The Performance Characteristics of SRI Equity Indices," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(1-2), pages 331-348.
- Schröder, Michael, 2005. "Is there a Difference? The Performance Characteristics of SRI Equity Indexes," ZEW Discussion Papers 05-50, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Leonardo Becchetti & Stefania Di Giacomo & Damiano Pinnacchio, 2008. "Corporate social responsibility and corporate performance: evidence from a panel of US listed companies," Applied Economics, Taylor & Francis Journals, vol. 40(5), pages 541-567.
- Andrew King & Michael Lenox, 2002. "Exploring the Locus of Profitable Pollution Reduction," Management Science, INFORMS, vol. 48(2), pages 289-299, February.
- John D. Lyon & Brad M. Barber & Chih-Ling Tsai, 1999. "Improved Methods for Tests of Long-Run Abnormal Stock Returns," Journal of Finance, American Finance Association, vol. 54(1), pages 165-201, 02.
- Salama, Aly, 2005. "A note on the impact of environmental performance on financial performance," Structural Change and Economic Dynamics, Elsevier, vol. 16(3), pages 413-421, September.
- Dasgupta, Susmita & Laplante, Benoit & Mamingi, Nlandu, 2001. "Pollution and Capital Markets in Developing Countries," Journal of Environmental Economics and Management, Elsevier, vol. 42(3), pages 310-335, November.
- Alexander Kempf & Peer Osthoff, 2007. "The Effect of Socially Responsible Investing on Portfolio Performance," European Financial Management, European Financial Management Association, vol. 13(5), pages 908-922.
- Gupta, Shreekant & Goldar, Bishwanath, 2005. "Do stock markets penalize environment-unfriendly behaviour? Evidence from India," Ecological Economics, Elsevier, vol. 52(1), pages 81-95, January.
- Hamilton James T., 1995. "Pollution as News: Media and Stock Market Reactions to the Toxics Release Inventory Data," Journal of Environmental Economics and Management, Elsevier, vol. 28(1), pages 98-113, January.
- Glen Dowell & Stuart Hart & Bernard Yeung, 2000. "Do Corporate Global Environmental Standards Create or Destroy Market Value?," Management Science, INFORMS, vol. 46(8), pages 1059-1074, August.
- Kee H. Chung & Stephen W. Pruitt, 1994. "A Simple Approximation of Tobin's q," Financial Management, Financial Management Association, vol. 23(3), Fall.
- Andreas Ziegler & Michael Schröder & Klaus Rennings, 2008. "The Effect of Environmental and Social Performance on the Stock Performance of European Corporations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(4), pages 609-609, August.
- Andreas Ziegler & Michael Schröder & Klaus Rennings, 2007. "The effect of environmental and social performance on the stock performance of european corporations," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 37(4), pages 661-680, August.
- Rob Bauer & Jeroen Derwall & RogÃ©r Otten, 2007. "The Ethical Mutual Fund Performance Debate: New Evidence from Canada," Journal of Business Ethics, Springer, vol. 70(2), pages 111-124, January.
- Hirsch, Barry T & Seaks, Terry G, 1993. "Functional Form in Regression Models of Tobin's q," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 381-385, May.
- Judith F. Posnikoff, 1997. "Disinvestment From South Africa: They Did Well By Doing Good," Contemporary Economic Policy, Western Economic Association International, vol. 15(1), pages 76-86, 01.
- Elsayed, Khaled & Paton, David, 2005. "The impact of environmental performance on firm performance: static and dynamic panel data evidence," Structural Change and Economic Dynamics, Elsevier, vol. 16(3), pages 395-412, September.
- Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, "undated". "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Greg Filbeck & Raymond Gorman, 2004. "The Relationship between the Environmental and Financial Performance of Public Utilities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 29(2), pages 137-157, October.
- 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.
- Lindenberg, Eric B & Ross, Stephen A, 1981. "Tobin's q Ratio and Industrial Organization," The Journal of Business, University of Chicago Press, vol. 54(1), pages 1-32, January.
- 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.
- Stephen Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Kempf, Alexander & Osthoff, Peer, 2007. "The effect of socially responsible investing on portfolio performance," CFR Working Papers 06-10, University of Cologne, Centre for Financial Research (CFR). Full references (including those not matched with items on IDEAS)