The Relation between Sustainability Performance and Stock Market Returns: An Empirical Analysis of the Dow Jones Sustainability Index Europe

Abstract

This paper investigates the relation between corporate financial performance (CFP) and corporate sustainability performance (CSP). This is done by first analyzing a sample of European stocks that were added to or deleted from the Dow Jones Sustainability Europe Index (DJSI Europe) over the period [2009][2010][2011][2012][2013], and second by analyzing a sample of European stocks that were recognized as industry group leaders in CSP by the DJSI Europe over the same period. The impacts are measured in terms of (abnormal) stock returns. For the first analysis no strong evidence could be found that the announcement of the inclusion and exclusion events has any significant impact on stock return. However, on the day of change (CD) and in the period following CD, index inclusion (exclusion) stocks experience a significant but temporary increase (decrease) in stock return. These results seem to support Harris and Eitan's (1986) price pressure hypothesis, which postulates that event announcement does not carry information and any shift in demand and hence the corresponding price change is temporary. From the second analysis, on industry group leaders, it can be concluded that the market rewards firms with high CSP. In the period after the day of change, industry group leader stocks experience a permanent and significant positive growth in stock returns. This conclusion can be supported by the resource based perspective, which posits that firms capable of investing heavily in CSP have greater underlying resources which in turn should produce higher financial performance (Alexander &

An Empirical Analysis of Corporate Social Responsibility Effects on Financial Performance for Romanian Listed Companies

“…Therefore, we found a positive relation between the CSR index (on one hand) and equity and market capitalization (on the other hand). We also identified the existence of a positive relation between the CSR index and return on equity and return on assets, as it was previously found for other countries (Jiang and Yang, 2015;Stekelenburg et al, 2015;Choi, Kwak and Chongwoo, 2010). The obtained results confirmed the considered hypothesis, according to which there is a positive relation between measures associated to the transition towards the bio-economy concept, by implementing CSR principles, and some indicators of financial and economic performance (such as return on assets and return on equity).…”

“…In order to estimate the impact induced by measures adopted for implementation of CSR concept on the financial performance of the analysed companies, we considered CSR variable as being independent variable, in panel data regression models, where the dependent variable is different measures of financial performance. The choice for this model was made considering some other studies, such as Jiang and Yang, 2015;Stekelenburg et al, 2015;Choi, Kwak and Chongwoo 2010;Orlitzky, 2001;Dumitrescu and Simionescu, 2015. In order to verify H3 hypothesis, in table no. 4 are presented the results for a regression model where the dependent variable is ROE and the independent variables are CSR index, logarithmic values for total assets and market capitalization, sales growth and average number of employees.…”

“…The empirical literature that studies the correlation of CSR and financial performance is abundant, but there is no consensus. Some reveal a positive correlation between CSR and financial performance (Jiang and Yang, 2015;Stekelenburg et al, 2015;Choi, Kwak andChongwoo, 2010, Wu, 2006;Orlitzky, 2001), others define a negative relation (Simionescu and Gherghina, 2014;Wagner, 2005;Taşkın, 2015), and some others argue a neutral relation (Griffin and Mahon, 1997;Iqbal et al, 2012;Graves and Waddock, 1999). Nelling and Webb (2009) reveal that the stock market performance influences CSR, but the financial performance is not influenced by the CSR activities.…”

Does the Stock Market Value Inclusion in a Sustainability Index? Evidence from Borsa Istanbul

“…Van Stekelenburg et al [27] examined the link between financial performance and CS performance by analyzing a sample of European stocks included to or deleted from the DJ Sustainability Europe Index over the period 2009-2013. They found that adding to the index temporarily increases the stock price for one trading day after the announcement, and removal from the index temporarily decreases the stock price for between five and ten trading days after the effective change date.…”

Corporate Financial Performance, Corporate Environmental Performance, Corporate Social Performance and Stock Return

“…Meanwhile, Garcia-Castro, Arino, and Canela (2010) proposed a negatively effect CSP on CFP. Stekelenburg, Georgakopoulos, Sotiropoulou, Vasileiou, and Vlachos (2015) explained the relationship between CFP and CSP by using the resource view of stakeholder theory. According to this theory, firms that invest in CSP have superior resources.…”