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ESG Rating and Financial Performance in the Emerging Markets: the Moderating Effects of Cross-Listing and Industry Type
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This study uncovers the relationship of company’s Environmental, Social, and Governance (ESG) performance and capital structure in Chinese corporate sector. Additionally, we investigated if audit quality intervenes this ESG—capital structure nexus. Using panel regressions with fixed effects, we chose Chinese A-Listed companies giving 6295 firm-year observations from 2010 to 2019. The results support the legitimacy theory, suggesting that a company's ESG disclosure and overall progress is a crucial factor in determining their financing decisions. The results suggest that firms with better ESG performance found to have less debt financing and easier access to equity capital from stock markets. However, the results did not show a significant impact of audit quality on this relationship. Sensitivity tests, such as alternate parameter estimation measures, techniques to address endogeneity issues (sysGMM), and lagged regressions, were conducted and did not change the key conclusions of the study.
This study seeks to investigate whether the environmental, social, and governance (ESG) performances of corporations from environmentally sensitive industries affect their financial performance. Moreover, the study determines how the impact of ESG performance on the corporate financial performance of environmentally sensitive corporations differs between developed and emerging countries. Our sample comprises 383 environmentally sensitive corporations, with 305 and 78 corporations from developed and emerging countries, respectively. Our findings indicate that overall ESG performance of environmentally sensitive corporations has a significantly positive relationship with the return on equity and Tobin’s Q of the corporations. Moreover, our findings indicate that the impacts of the ESG performance of environmentally sensitive corporations on the financial performance are stronger in developed countries than emerging countries. This study contributes to the literature by adding a better understanding of the ESG–financial performance relationship, especially for the environmentally sensitive industries from both developed and emerging countries.
In this study, we examine impact of Environment, Social, Governance (ESG) performance on firm value and profitability. Our large dataset gives us the chance to better conceptualize this impact. Our findings suggest that overall ESG combined score is positively and significantly associated with firm value. Individual Social and Governance scores have a positive and significant relationship while Environment score does not have a significant relationship with firm value. On the other hand, ESG combined score, Environment, Social, and Governance scores have positive and significant relationships with firm profitability. These findings suggest that investing in high ESG performance promises financial return for the firm in terms of both value and profitability.
The study explores the moderating role of audit quality in the relationship between environmental, social, and governance (ESG) factors and corporate financial performance (CFP) in Western European countries. The research sample includes 620 firms headquartered in Western Europe, including Austria, Belgium, France, Germany, Luxembourg, Monaco, the Netherlands, and Switzerland from 2010 to 2019. Panel data estimations are used to examine the direct and moderating effects. The results show that ESG has a significantly negative effect on a firm’s financial performance as measured by the return on assets (ROA), supporting the trade-off hypothesis in which investing in ESG activities increases the cost of business. Additionally, we find that ESG’s adverse influence on CFP is more evident at enterprises that are certified by Big Four accounting firms. However, ESG has a significantly positive effect on revenue, suggesting that customers are more attracted to firms that invest in ESG. The analysis of the subcomponents of ESG supports the main results. The results are robust to alternative model specifications and alternative measures of CFP and audit quality and are free of endogeneity issues. The findings contribute to the existing knowledge on ESG by elucidating the effect of external auditor quality on the ESG-CFP relationship. We also examine overall ESG scores as well as individual ESG characteristics (environmental, social, and governance).
This study examines the value relevance of corporate reputation risks (CRR) from adverse media coverage of environmental, social and governance (ESG) issues on stock performance at the firm level. Empirical results advance signalling theory and resource-based view by providing evidence that corporate reputation is considered a valuable intangible asset by investors and adverse ESG disclosure via media channels have a significant and negative impact on firm valuation. The research is extended using various factors and indicates that heightened CRR have a substantially negative corollary effect on stock price of smaller and less liquid firms that are typically not S&P500 constituents. Further analysis using industry classifications reveals that stock performance of companies in the ‘sin’ triumvirate (i.e., alcohol, tobacco, and gaming) is not significantly affected by negative ESG media coverage. Instead, firms in candy & soda, steel works, banking, and insurance industries are the most susceptible to investors’ repercussion from undesirable media spotlight. These findings provide new insights and indicate that beyond the type and delivery method of ESG disclosures, firm characteristics, corporate reputation status and industry explain differences in investors’ reaction to ‘bad’ news.
We explore the most relevant forces impacting the shift towards more ESG-related strategies in emerging markets. These include the challenges of climate change, social inequalities, and stakeholder-oriented corporate governance. We focus on banks' role in BRICS countries that are the biggest and fastest growing emerging markets economies over 2009-2020. We also discuss how the ESG agenda has been pushed by the United Nations (UN) and by regulators. Our evidence shows that banks' specific adoption of international sustainability frameworks and agreements such as the Global Reporting Initiative (GRI) are significant drivers of ESG engagement. Moreover, we find that a stronger ESG regulatory approach enhances banks' sustainability practices in BRICS countries, especially for those that have lower average ESG scores. Two main implications can be drawn from our study: (i) banks should be encouraged to adopt international frameworks which provide universal minimum standards for corporate responsibility; and (ii) to improve the overall ESG information environment, mandatory disclosure rules should be introduced at country level.
Purpose
The purpose of this paper is to examine the correlation between firm size, growth and profitability along with other firm-specific variables (like leverage, competition and asset tangibility), macroeconomic variable (like GDP growth-business cycle) and stock market development variable (like MCR).
Design/methodology/approach
Using the COMPUSTAT Global database this work uses panel dynamic fixed effects model for nearly 12,001 unique non-financial listed and active firms from 1995 to 2016 for 12 industrial and emerging Asia–Pacific economies. This interrelationship was also examined for small, medium and large size companies classified based on three alternate measures such as total assets, net sales and MCR of firms.
Findings
The persistence of profits coefficient was found to be positive and modest. There is evidence of a negative size-profitability and positive growth-profitability relationship suggesting that initially profitability increases with the growth of the firm but eventually, overtime, gains in profit rates reduce, as size increases indicting that large size breeds inefficiency. The relationship between firm's leverage ratio and its asset tangibility is found to be negative with profitability. The business cycle and stock market development variables suggest a positive relationship with the profitability of firms. However, the significance of estimated coefficients was mixed and varied among different selected Asia–Pacific economies.
Practical implications
The study has economic implications on issues such as industrial concentration, risk and optimum size of firms for practicing managers of modern enterprise in emerging markets.
Originality/value
The analysis of the relationship between the firm size, growth and profitability is uniquely determined under a dynamic panel fixed effects framework using firm-specific variables along with macroeconomic and financial development determinants of profitability. This relationship is estimated for a large and new data set of 12 industrial and emerging Asia–Pacific economies.
This study collates potential economic effects of mandated disclosure and reporting standards for corporate social responsibility (CSR) and sustainability topics. We first outline key features of CSR reporting. Next, we draw on relevant academic literatures in accounting, finance, economics, and management to discuss and evaluate the potential economic consequences of a requirement for CSR and sustainability reporting for U.S. firms, including effects in capital markets, on stakeholders other than investors, and on firm behavior. We also discuss issues related to the implementation and enforcement of CSR and sustainability reporting standards as well as two approaches to sustainability reporting that differ in their overarching goals and materiality standards. Our analysis yields a number of insights that are relevant for the current debate on mandatory CSR and sustainability reporting. It also points scholars to avenues for future research.
The purpose of this paper is to determine whether environmental, social, and governance (ESG) practices affect corporate financial performance (CFP) indicators at Turkish listed companies. The impact of ESG disclosures on the firm-level CFP of companies listed on the Borsa Istanbul Corporate Governance Index (XKURY) over the period 2007-2017 is investigated using the corporate governance principles of the Capital Markets Board and Global Reporting Initiative (GRI) environmental indicators. The contribution of this study is that it explores the influence of twenty independent ESG variables, comprising company disclosures, on CFP in an emerging market. The results of the study reveal a negative effect of environmental disclosures on CFP. Stakeholder involvement in management contributes to operational efficiency in the social dimension of ESG. Provisions related to shareholder rights and the board of directors have a positive impact on CFP in the governance dimension.
In recent years, greater attention has been paid to sustainability issues. Companies have received increasing pressure from stakeholders to adopt sustainable behavior and provide an adequate representation of sustainability practices. Nonfinancial disclosure has thus taken on a crucial role. In the academic field, several researchers have analyzed the effects of nonfinancial disclosure. However, limited attention has been paid to the impact of nonfinancial information on the cost of debt. This study aims at bridging this gap by analyzing the effect of ESG disclosure on the cost of debt. The fixed effects analysis conducted on a sample of 8264 observations (an unbalanced panel data of 919 firms for the period 2010–2019), shows a negative effect of the ESG disclosure on the cost of debt financing. The results demonstrate that companies with greater levels of transparency in the dissemination of ESG information benefit from accessing third party financial resources at better conditions.
We study the relationship between corporate social performance and financial performance by comparing the portfolio returns of firms with changes in corporate social responsibility (CSR) intensity. Using an extensive US sample from the MSCI ESG database, we find that improvement in the overall CSR is generally value enhancing. The relationship varies with CSR dimensions. More importantly, the relationship shifts differently for various CSR dimensions during the crisis period when trust in the society is low and financial resource is limited. Improvement in environment, human rights, and product characteristics shows higher financial returns during the financial crisis period, whereas the value enhancement of improvement in employee relations is more pronounced during the non-crisis period.
Purpose
This paper aims to investigate whether there are relationships among corporate disclosure of environmental, social and governance (ESG) and firms’ operational (ROA), financial (ROE) and market performance (Tobin’s Q), and if these relationships are positives or negatives or even neutral.
Design/methodology/approach
The study sample covers US S&P 500-listed companies during the period 2009 to 2018. Panel regression analysis was used to examine the study hypotheses and achieve the study aims.
Findings
The results showed that ESG disclosure positively affects a firms’ performance measures. However, measuring ESG sub-components separately showed that environmental (EVN) and corporate social responsibility (CSR) disclosure is negatively associated with ROA and ROE. EVN and CSR disclosure is positively related to Tobin’s Q. Further, corporate governance (CG) disclosure is positively related to ROA and Tobin’s Q, and negatively related to ROE. More importantly, ESG, CSR, EVN and CG tend to be higher with firms that have high assets and high financial leverage. Furthermore, the higher level of ESG, EVN, CSR and CG disclosure, the higher the ROA and ROE.
Originality/value
The study limns a vision of the role of ESG on firm performance. This study tries to determine whether there are relationships among all ESG disclosure and FP, and if they are positive, negative or even neutral.
Free access till December, 25th, 2020: https://authors.elsevier.com/a/1c14C5a4WJMf3r.
This paper examines whether foreign shareholders, foreign board members, and cross-listing, are related to corporate social responsibility (CSR) disclosure in Russia. A sample of 223 Russian listed companies is analyzed for the period 2012–2015. In line with legitimacy theory and agency theory, our empirical results demonstrate that foreign board members and cross-listing help companies to raise their accountability through increased CSR disclosure. At the same time we report that foreign ownership does not enhance CSR disclosure, as the majority of foreign shareholders of Russian companies are registered in offshore domiciles that are used for more efficient tax allocation.
Considering the institutional, cultural, and regulatory differences across countries, this research investigates the association between environmental, social, and governance (ESG) performance and financial performance of companies from emerging and developed countries. The institutional difference hypothesis (IDH) suggests that institutional weaknesses in emerging markets affect the relationship between financial performance and corporate social performance (CSP) of companies. This can occur because, under such circumstances, firms are more likely to prioritize the capital accumulation and not recognize the potential strategic benefit of socially responsible investments. To investigate this hypothesis, we performed a regression analysis of panel data study comprising 2,165 companies from developed and emerging countries, covering the period between 2007 and 2014. Our results suggest that there is a prevalence of the institutional environment in relation to the financial and ESG performances of companies. These results are in line with the logic of the IDH.
In the present study, we integrate research from the dynamic institutional theory literature to develop a set of theory‐driven hypotheses regarding how the institutionalization of corporate social performance (CSP) in the organizational field over the period 1991–2008 impacts the CSP‐ corporate financial performance (CFP) relationship for firms in the marketplace. The results of our panel time series and dynamic linear estimation models suggest that early CSP adopters are more likely to experience both greater firm profitability and increased stock market valuation as a result of their higher CSP levels. However, they also tend to incur more firm‐idiosyncratic risk for being ahead of the market’s CSP expectations. We also demonstrate that the significant rise in CSP adoption and activities over time, as CSP has become institutionalized, has resulted in CSP becoming a weaker driver of both firm profitability and stock market valuation.
This study develops the concept of Strategic Corporate Social Responsibility (Strategic CSR) by meta‐analyzing the available empirical evidence on the relationship between CSR and corporate financial performance (CFP). Using meta‐analytic structural equation modeling on effect size data from 344 primary studies, our study documents four empirical mechanisms explaining how CSR positively affects CFP: by 1) enhancing firm reputation, 2) increasing stakeholder reciprocation, 3) mitigating firm risk, and 4) strengthening innovation capacity. We propose these four mechanisms to identify four causally relevant attributes that allow us to conceptually distinguish Strategic CSR from CSR more generally. Our findings indicate that the four mechanisms combined explain 20 per cent of the CSR‐CFP relationship, suggesting that considerable room remains for future empirical research. The development of an empirically informed, causal conceptualization of Strategic CSR responds to a long‐heard call for better‐specified concepts in empirical CSR research.
The concept of sustainable and responsible (SR) investments expresses that every investment should be based on the SR investor’s code of ethics. To a large extent the allocation of SR investments to more sustainable companies and ethical practices is based on the environmental, social, and corporate governance (ESG) scores provided by rating agencies. However, a thorough investigation of ESG scores is a neglected topic in the literature. This paper uses Thomson Reuters ASSET4 ESG ratings to analyze the influence of firm size, a company’s available resources for providing ESG data, and the availability of a company’s ESG data on the company’s sustainability performance. We find a significant positive correlation between the stated variables, which can be explained by organizational legitimacy. The results raise the question of whether the way the ESG score measures corporate sustainability gives an advantage to larger firms with more resources while not providing SR investors with the information needed to make decisions based on their beliefs. Due to our results, SR investors and scholars should reopen the discussion about: what sustainability rating agencies measure with ESG scores, what exactly needs to be measured, and if the sustainable finance community can reach their self-imposed objectives with this measurement.
We examine how mandatory disclosure of corporate social responsibility (CSR) impacts firm performance and social externalities. Our analysis exploits China's 2008 mandate requiring firms to disclose CSR activities, using a difference-in-differences design. Although the mandate does not require firms to spend on CSR, we find that mandatory CSR reporting firms experience a decrease in profitability subsequent to the mandate. In addition, the cities most impacted by the disclosure mandate experience a decrease in their industrial wastewater and SO2 emission levels. These findings suggest that mandatory CSR disclosure alters firm behavior and generates positive externalities at the expense of shareholders.
Purpose -
This paper concentrates on environmental, social and governance (ESG) performance in total and divided in each component and their impact on financial performance.
Design/methodology/approach -
The study covers a sample selection of companies listed on the German Prime Standard (DAX30, TecDAX, MDAX) for the business years 2010-2014 (412 firm-year observations). A correlation and regression analysis are carried out in order to evaluate possible links between ESG performance as determined by the AssetFour database of Thomson Reuters and accounting and market-based measures of financial performance (ROA and Tobin’s Q).
Findings -
ESG performance has a positive impact on ROA but no impact on Tobin’s Q. Furthermore, by analyzing the three different components of ESG performance, governance performance has the strongest impact on financial performance in comparison to environmental and social performance.
Originality/value -
The analysis makes a key contribution to the empirical CSR research as we break down ESG performance into their three components and include both accounting-based and market-based financial performance measures for the German setting for the first time. Not only companies but also regulators and researchers are affected by the notion that CSR and financial performance are close together and should be lead to a successful stakeholder management.
We investigate the relationship between corporate social responsibility (CSR) and firm-level capital allocation efficiency. Using seminal investment-Q framework, we provide evidence that CSR distorts investment sensitivity to Q. We further determine that this effect of CSR is moderated by the assumed level of agency conflict, stakeholder engagement, as well as financial slack. We also document that CSR negatively affects the sensitivity of external finance to Q and aggravates investment sensitivity to cash flow. In addition, we find that the distortion in the firm-level capital allocation efficiency is reflected in firm performance. Our findings are robust to alternative variable measurement as well as tests for endogeneity.
In their seminal survey of corporate governance, Shleifer and Vishny distill the issue into a blunt question: "How do [the suppliers of finance] make sure that managers do not steal the capital they supply or invest it in bad projects?" The Enron/Arthur Andersen debacle and the ensuing wave’s of scandal vividly proved that American investors may face this question in the most acute form. To the extent that corporate governance issues play a role in the cross-listing decision, it is a negative role. Generally speaking, the foreign issuer regime "cuts corners" exactly on the issues of corporate governance relating to corporate insiders. The notion that issuers may want to improve their corporate governance by subjecting themselves to a better regulatory regime through cross-listing—say, on an American market—is appealingly elegant. If an American firm could use an NYSE listing to bond its insiders to better governance standards, why couldn’t foreign firms do the same? In an oft-cited 1999 article, Jack Coffee argues that they do just that: In other cases, however, the cross-listing may not entail corporate governance improvements. The cross-listing literature refers to differences in investor protection in three separate respects. In practice, however, foreign issuers can easily obtain an exemption from corporate governance listing requirements. The notion that corporations can self-improve their corporate governance by opting into a foreign country’s legal and regulatory regime through cross-listing has made considerable inroads into the legal and finance literature.
The oil and gas sector is under pressure because of its impact on sustainability. Company’s stakeholders are aware of the ethical behavior of those firms related to hazardous activities. Literature has analyzed the relationship between corporate social responsibility and different measures of efficiency (e.g., financial performance or market value) without a conclusive result.
This research establishes an ESG index (environmental, social and governance) that allows a comprehensive measure of corporate social responsibility and its effects on corporate financial strategy. The study analyzes how the ESG index influences the value of oil and gas companies as well as their financial performance and financial risk. To do this, the PLS-SEM was applied to a sample of 219 oil and gas companies in different countries. Results show that the environmental and governance dimensions are the backbone of the ESG index that positively impact on all three.
Companies engage in ESG activities in order to achieve higher financial returns and to signal compliance in the market. The link between ESG and firm financial performance is still not well established because literature is infused with conflicting results and paradoxes. Through bibliometric analysis and meta-analysis, this study attempts to synthesize literature on ESG performance and its impact on performance. Bibliometric analysis highlights top scholars in the field, leading journals, institutions, countries, and an overview of highly cited articles in sustainable finance. This study presents three research streams: (1) Firm characteristics and ESG performance, (2) Corporate governance and ESG performance and (3) Financial materiality of ESG disclosure. Additionally, I conducted a meta-analysis in which I used random effects models to compute the effect sizes of each research stream. Finally, research trends and a future research framework are proposed based on the research gap identified in this review.
We investigate the nexus between corporate social responsibility (CSR) and firms' stock market liquidity. Using actual firm-level CSR expenditure data and a quasi-natural experiment setup of a mandated CSR regulation in India, we find that firms complying with the mandate experience significantly higher stock market liquidity, relative to non-CSR firms in the post-CSR mandate period. This effect seems to be more pronounced among CSR firms not affiliated to business groups, with concentrated promoter ownership, with low institutional ownership, with foreign sales and having operations in multiple locations. Further, we find that firms spending more on education and healthcare projects as part of their mandatory CSR engagement have higher stock market liquidity. Our results are in line with the conjecture that mandatory CSR regulation could lead to reduced information asymmetry and improved social and reputational capital, and thus improve the stock market liquidity of CSR firms. Finally, we show that mandated CSR firms, having superior stock market liquidity, obtain higher market valuations in the long run.
Firms search for new strategic actions when their financial performance falls below their aspired level. This study examines whether financial performance shortfalls motivate firms to undertake improved ESG practices, possibly to maintain future legitimacy. It also investigates whether ESG controversies mediate firms’ ESG decisions in such situations. It finds a strong positive influence of financial performance shortfall on firm's ESG performance. However, when such firms are constrained by high levels of ESG controversies, they are less likely to engage in higher ESG practices, although such controversies have positive mediating impact on the relationship between financial performance shortfalls and ESG performance.
The purpose of this study is twofold. First, it tests the association between corporate social responsibility (CSR) performance and firm performance in the tourism, healthcare, and financial sectors. Second, it investigates whether CSR committees moderate this association in those sectors. To achieve these objectives, two proxies for CSR performance namely CSR performance and change in CSR performance are utilized. Moreover, firm performance is measured by three dimensions: market-based, accounting-based, and sales-based performance. The data for the three sectors were retrieved from the Thomson Reuters Eikon database from 2011 to 2018. While the financial sector generates firm value out of CSR performance per se, the tourism and healthcare sectors cannot. It is imperative to establish CSR committees among tourism firms to enhance firm value from CSR practices, since CSR performance and change in CSR performance per se do not generate value unless CSR performance interacts with the CSR committee. Moreover, the interaction of CSR committees with change in CSR performance does not generate value in either sector, which may imply that stockholders are satisfied with the current level of CSR engagement. Unlike the tourism sector, CSR committees cannot currently contribute to achieving higher market value in the healthcare and financial sectors. The conclusions concerning other performance metrics (profitability and sales) for the three sectors are outlined in the conclusion section. The study provides an opportunity for the three sectors to leverage CSR for firm performance improvement and presents refined guidelines that employ different firm performance measurements and CSR metrics.
In this study, we examine whether a country's implementation of major corporate governance reforms affects firms' cross-listing activities. Cross-listing is important in overcoming international investment barriers and thus it is worth investigating whether enhanced corporate governance at the country level contributes to the integration of international capital markets. Using a difference-in-differences (DiD) research design, we predict and find that following the implementation of corporate governance reforms in their home countries, firms are more likely to engage in cross-listing activities and tend to cross-list in host countries with stronger investor protection and more developed markets than those in countries with no reforms in the same period. The results from country-level cross-sectional tests indicate that this effect is greater for firms in home countries with weaker investor protection and less developed stock markets in the prereform period. The reforms also have a stronger effect on firms subject to less analyst following and greater external finance dependence. Finally, we find a stronger association between cross-listing activities and institutional ownership after the reforms. Taken together, this study increases understanding of the trade-off between cross-border capital supply and demand. Our finding suggests that country-level corporate governance plays an important role in facilitating the supply of cross-border capital, which in turn incentivizes firms to cross-list. Our study also offers policy implications for national stock exchanges and securities regulators by suggesting that countries without well-developed capital markets should strengthen their corporate governance to improve firms' ability to raise external financing and attract cross-border capital flows.
Free access to accepted manuscript provided by Wiley https://onlinelibrary.wiley.com/share/author/P8FHMDUKPZVF5NM7N9R2?target=10.1111/1911-3846.12729.
We study the quantity of ESG disclosure of 1963 large-cap companies headquartered in 49 countries. Using the Bloomberg ESG disclosure score as the measure of disclosure quantity, we find that firm characteristics explain most of the variation in firms' ESG disclosure, whereas variations in country factors such as corruption and political rights explain less. We empirically examine and extend the theoretical framework of the liability of foreignness in capital markets. Our results support the notion that cross-listed firms disclose more ESG data than those only listed in their home market to mitigate the liability of foreignness in external capital markets. We also find that an increased percentage of foreign ownership does not augment ESG disclosure. Companies which opt to increase foreign equity ownership at home do not encounter the challenges of foreignness. Our findings suggest that cross-listed status is likely to reduce the importance of country factors for variations in ESG disclosure quantity.
We review the financial economics-based research on Environmental, Social, and Governance (ESG) and Corporate Social Responsibility (CSR) with an emphasis on corporate finance. In doing so we focus on the most debated and researched issues. Although a firm's ESG/CSR profile and activities are shown to be strongly related to the firm's market, leadership and owner characteristics as well its risk, performance and value, there still exist conflicting hypotheses and results that we show are not resolved, leading to continued questions and a need for more research.
This study examines the impact of reputational risk, measured by corporate social irresponsibility (CSI) ratings, on shareholder abnormal returns. Based on 7,368 non-financial companies from 42 countries during 2007-2017, we find that long-short portfolios (buying no reputation risk and selling high reputation risk portfolios) earn significantly positive abnormal returns. The cross-national results indicate that the long-short portfolio returns are more pronounced (i) in the emerging market segment than in the developed market segment, (ii) in civil law jurisdictions than in their common law peers, (iii) within nations with higher confidence in corporations and, (iv) within nations with higher institutional trust.
We examine the value impact of mandatory Corporate Social Responsibility (CSR) spending required by the Indian Companies Act of 2013 for large and profitable Indian firms. We find that the external mandate is value decreasing, even after controlling for prior voluntary CSR activity by firms affected by the mandate. We also find that there is systematic crosssectional variation across firms. Firms that are profitable and firms in the Fast Moving Consumer Goods sector that voluntarily engaged in CSR, benefit from CSR. Industrial firms and firms with high capital expenditures are negatively impacted by the mandate. We conclude that a one-size-fits-all approach to CSR is sub-optimal and value decreasing.
The last two decades have witnessed a growing interest in corporate social responsibility (CSR) worldwide by corporations, investors, policy makers, and researchers across different disciplines. This paper is part of a Special Issue devoted to CSR practices of firms in emerging market economies (EMEs). It complements prior research focusing mainly on developed countries. We begin with an assessment of CSR practices in EMEs, and examine their determinants and performance implications. We then review key findings in the empirical CSR literature, including studies published in the Emerging Markets Review Special Issue. We conclude by describing pertinent avenues for future research.
The aim of this study is twofold: to explore whether board characteristics (i.e. a sustainability committee, board independence, board diversity, and board diligence) lead to greater corporate social responsibility (CSR) performance, and to test whether CSR performance enhances firms' financial performance in the hospitality and tourism (H&T) industry. Data were collected from the Thomson Reuters Eikon database for the H&T firms listed there between 2011 and 2018. We employed panel data analysis, after which we ran robustness tests. The results indicated that having a CSR committee and female directors on the board are robust factors driving firms to show superior CSR performance in all dimensions, including environmental, social, and governance (ESG). Independent directors and directors' diligence selectively enhance the overall CSR score and individual pillars of CSR. Investigating the relationship between CSR performance and firms' financial performance did not produce a significant outcome. The findings propose a straightforward roadmap for H&T firms and policymakers to identify characteristics of CSR-friendly boards.
We examine whether the effect of increased creditor rights on corporate borrowing depends on firms’ access to internal capital. By exploiting a creditor protection reform in the Indian market, empirical outcomes strongly indicate that strengthening of creditor rights leads to increased corporate borrowing among firms that have constrained access to internal capital compared to business group affiliated firms, which have relatively easier access to internal capital. Further, the increased corporate borrowing by firms with constrained access to internal capital, in the post-reform period, is associated with a greater expansion of real investments, improved operational performance, and better market valuation. Taken together, these findings indicate that expanding creditor rights may aid in improving allocative efficiency
JEL Codes: G32; G34; G38
The difference and system generalized method-of-moments estimators, developed by Holtz-Eakin, Newey, and Rosen (1988, Econometrica 56: 1371–1395); Arellano and Bond (1991, Review of Economic Studies 58: 277–297); Arellano and Bover (1995, Journal of Econometrics 68: 29–51); and Blundell and Bond (1998, Journal of Econometrics 87: 115–143), are increasingly popular. Both are general estimators designed for situations with “small T, large N″ panels, meaning few time periods and many individuals; independent variables that are not strictly exogenous, meaning they are correlated with past and possibly current realizations of the error; fixed effects; and heteroskedasticity and autocorrelation within individuals. This pedagogic article first introduces linear generalized method of moments. Then it describes how limited time span and potential for fixed effects and endogenous regressors drive the design of the estimators of interest, offering Stata-based examples along the way. Next it describes how to apply these estimators with xtabond2. It also explains how to perform the Arellano–Bond test for autocorrelation in a panel after other Stata commands, using abar. The article concludes with some tips for proper use.
Based on the central premise that corporate social responsibility (CSR) actions are inherently moral acts, we draw upon moral foundations theory to investigate the extent to which consumers’ moral foundations affect their pro-company behaviors based on CSR domains. In two studies, our results reveal that when consumers’ moral foundations are congruent with CSR domains, positive pro-company behaviors increase. Moreover, this congruency effect is observed only in positive CSR actions but not in CSR lapses. Lastly, we introduce consumer-company identification as the underlying process driving the consumer-domain congruence effect on pro-company reactions. Theoretical contributions and practical implications for marketers are discussed.
Purpose
This study aims to investigate both the direct and indirect associations of environmental disclosures with financial performance, environmental performance, and firm value.
Design/methodology/approach
The samples are companies listed on the Indonesia Stock Exchange in the agriculture industry, mining industry, basic industry and chemicals, miscellaneous industry, and consumer goods industry, and that are participating in the Performance Rating Assessment Programme on Environment Management (PROPER/Program Penilaian Peringkat Kinerja Perusahaan) of the Ministry of the Environment Republic of Indonesia or have been awarded the Green Industry Award by the Ministry of Industry Republic of Indonesia in year 2012–2014. Data are collected from sustainability reports, annual reports, and annual financial statements. We employed Simultaneous Equation Modelling (SEM) and panel data regression analysis to analyse the data.
Findings
We find that the financial performance does not affect the environmental disclosures, while the lagged environmental performance has a positive effect on the current environmental disclosures, the environmental disclosures do not affect the firm market value, and environmental disclosures do not mediate the effect of financial performance and environmental performance on firm value.
Originality/value
Our study comprehensively examines both the direct and indirect association of environmental disclosures with financial performance, environmental performance and firm value, which is rarely examined in extant studies.
This paper not only attempts to survey the burgeoning literature on environmental, social and governance disclosures and performance and their effects on firm value, but its focus also lies on highlighting stylised observations coming from the most recent work that has not yet become part of the ‘conventional wisdom’ in the field. In addition, it outlines some of the crucial knowledge gaps and interesting questions that have not, as of yet, been addressed and thus outlines a potential agenda for future research on socially responsible investing. Lastly, it introduces the papers published in this special issue of the British Accounting Review.
Using a large cross-sectional dataset comprising of FTSE 350 listed firms, this study investigates whether superior environmental, social and corporate governance (ESG) disclosure affects firm value. We find a positive association between ESG disclosure level and firm value, suggesting that improved transparency and accountability and enhanced stakeholder trust play a role in boosting firm value. We also report that higher CEO power enhances the ESG disclosure effect on firm value, indicating that stakeholders associate ESG disclosure from firms with higher CEO power with greater commitment to ESG practice. This evidence is strong and consistent for three different measures of ESG-related disclosure: the ESG, environmental and social disclosure scores. The results are robust to the use of an instrumental variable approach, and the Heckman two-stage estimation procedure.
Researchers have reported a positive, negative, and neutral impact of corporate social responsibility (CSR) on financial performance. This inconsistency may be due to flawed empirical analysis. In this paper, we demonstrate a particular flaw in existing econometric studies of the relationship between social and financial performance. These studies estimate the effect of CSR by regressing firm performance on corporate social performance, and several control variables. This model is misspecified because it does not control for investment in R&D, which has been shown to be an important determinant of firm performance. This misspecification results in upwardly biased estimates of the financial impact of CSR. When the model is properly specified, we find that CSR has a neutral impact on financial performance. Copyright © 2000 John Wiley & Sons, Ltd.
This paper investigates the dynamics of cross-listing and corporate social responsibility (CSR). Using a sample of 10,815 firm-year observations from 54 countries over the period 2002–2011, we find that cross-listed firms have better CSR performance than non–cross-listed domestic firms. This result is robust to endogeneity and different types of cross-listing. We also find that CSR increases (decreases) significantly after cross-listing in (delisting from) U.S. markets. The positive impact of cross-listing on CSR performance is stronger for firms from countries with weaker institutions, lower country-level sustainability, and higher liability of foreignness, and for firms operating in industries with high litigation risk. Finally, we find that cross-listed firms with better CSR performance exhibit higher valuations.
We propose that cross-listing is associated with better environmental, social, and governance (ESG) performance, because cross-listed firms adopt ESG practices to mitigate the liability of foreignness (LOF) in foreign financial markets. Institutionalization processes have made ESG practices important for managing challenges associated with the LOF. With tests involving the S&P Global 1200 index, we show that cross-listing improves corporate social responsibility (CSR; i.e., social and environmental dimensions) but not corporate governance. The effects of cross-listing on CSR also depend on investor protection regimes of listing destinations: Stronger regimes correspond with poorer CSR performance, suggesting that they limit managerial discretion.
This paper examines the effect of cross-listing and additional cross-listing on firm value for a unique and comprehensive sample of firms listed abroad. Using an event study methodology, we show that, while additional cross-listing has a diminishing effect on firm value, generally the three first listings abroad result in positive price reaction. Our results also show that US exchanges are more conductive to value creation for the post-listing period, while UK exchanges play a greater role for the pre-listing period. We also find, in a multivariate regression analysis that traditional explanations for value creation after cross-listing, related essentially to legal environment and proximity preference, are not significant. Our results provide new empirical evidence showing that the improvement in stock price informativeness around cross-listing is the most responsible for valuation gain.
Given the rising interest in corporate social responsibility (CSR) globally, its local expressions are as varied as they are increasingly visible in both developed and developing countries. This paper presents a multilevel review of the literature on CSR in developing countries and highlights the key differentiators and nuanced CSR-related considerations that qualify it as a distinctive field of study. This review entails a content analysis of 452 articles spanning two-and-a-half decades (1990–2015). Based on this comprehensive review, the authors identify the key differentiating attributes of the literature on CSR in developing countries in relation to depictions of how CSR is conceived or 'CSR Thinking' and depictions of how CSR is practiced and implemented or 'CSR Doing'. The authors synthesize from there five key themes that capture the main aspects of variation in this literature, namely: (1) complex institutional antecedents within the national business system (NBS); (2) complex macro-level antecedents outside the NBS; (3) the salience of multiple actors involved in formal and informal governance; (4) hybridized and other nuanced forms of CSR expressions; and (5) varied scope of developmental and detrimental CSR consequences. The paper concludes by accentuating how the nu-anced forms of CSR in the developing world are invariably contextualized and locally shaped by multi-level factors and actors embedded within wider formal and informal governance systems.