The financial and market consequences of environmental, social and governance ratings

Abstract

Purpose This study aims to examine the combined impact of environmental, social and governance (ESG) ratings on the market and financial performance of Egyptian companies during the period from 2007 to 2016 and, thereby, determines the influence of the recent political revolutions –that broke out in the MENA region in early 2011 – on the association between ESG practices and corporate performance. Design/methodology/approach The present work uses data from the S&P/EGX ESG index, which is the first of its kind in the MENA region. The ESG index is designed to increase the profile of companies listed on the Egyptian Exchange and is expected to boost the level and quality of ESG practices in the Egyptian context. The sample includes the 100 most active Egyptian companies in the Egyptian Stock Exchange as measured by the EGX 100 index in the financial year that ended in 2016. The sample begins in 2007, concurrent with the start of the ESG index, and ends in 2016. The period from 2007 to 2010 represents the pre-revolution period, and the period from 2012 to 2016 is the post-revolution period. Findings Firms with high ESG ratings are found to enjoy a better financial and market performance. The authors found some evidence that the influence of ESG ratings on financial performance is more obvious after the revolutions than before the revolutions. Practical implications This study provides insights regarding the impact of political events on the market in the Middle East region. Despite its increasing economic and political importance, this region still suffers from inadequate attention in the literature. The present work investigates the variances that evolved out of the events that started in early 2011 and the implications of these events on the market. The results of this study have implications for regulators and investors in the Egyptian stock market. The authors believe that the relatively new S&P/EGX ESG index provides a way to enhance ESG ratings in Egypt. Social implications The results of the present study provide insights for policymakers regarding the usefulness of the sustainability indices. Originality/value The present results contribute to the growing literature on the economic consequences of ESG ratings, especially in relation to a context characterized by intense political/revolutionary changes. In particular, this study contributes to the few works that have addressed the economic implications of ESG ratings in emerging markets.

Institutional complexity and CSR practices: evidence from a developing country

“…Contributions to developing a community are seen here as the primary way to improve the communities in which businesses operate (Visser, 2008). Hence, our study also supports the view that CSER practices in developing countries are much related to local ideologies more than being related to formal legal and accounting regulations as the case in developed contexts (e.g., Amaeshi et al , 2006; Crinis, 2019; Damoah et al , 2019; Aboud and Diab, 2019).…”

Risk-based management control resistance in a context of institutional complexity: evidence from an emerging economy

“…Thus, we engage in the current debate on how management accounting and control practices in less developed countries are shaped by cultural and political factors (Aboud and Diab, 2019). Researchers in this genre have reported how neoliberalism and the associated reform programmes brought changes to management accounting and controls with unintended consequences (Alawattage, 2011;Hopper et al, 2009;Uddin and Hopper, 2001;Wickramasinghe and Hopper, 2005).…”

Contingent Effect of Board Gender Diversity on Performance in Emerging Markets: Evidence from the Egyptian Revolution

“…This preferential treatment was also seen as extending to a number of large Egyptian firms with ties to the regime (Acemoglu et al 2018;Choukeir 2013). The peaceful demonstrations began in January 2011 and continued until the president (Mubarak) stepped down on 12 February 2011 (Aboud and Diab 2019).…”

“…In June 2013 the Muslim Brotherhood and their president were deposed after only one year of ruling. Abdel-Fattah El Sisi then began ruling the country (Aboud and Diab 2019) and remains in power as of 2021. In early 2014 the country entered into a more settled period, though still under military rule.…”