Towards a more ethical market: the impact of ESG rating on corporate financial performance

By Giovanni Landi, Mauro Sciarelli. Social Responsibility Journal, 2019

280 citations recorded by the source corpus.

Purpose This paper fits in a research field dealing with the impact of Corporate Ethics Assessment on Financial Performance. The authors argue how environmental, social and governance (ESG) paradigm, meant to measure corporate social performance by rating issuance, can impact on abnormal returns of Italian firms listed on Financial Times Stock Exchange Milano Indice di Borsa (FTSE MIB) Index, developing a panel data analysis which runs from 2007 to 2015. Design/methodology/approach This study aims at exploring whether socially responsible investors outperform an excess market return on Italian Stock Exchange because of their investment behavior, testing statistically the relationship between the yearly ESG assessment issued by Standard Ethics Agency on FTSE MIB’s companies and their abnormal returns. To verify the impact of an ESG Rating on a company’s abnormal return, the authors developed a panel data analysis through a Fixed Effects Model. They measured abnormal returns via Fama–French approach, running a yearly Jensen’s Performance Index for each company under investigation. Findings The empirical results denote in Italy both a growing interest to corporate social responsibility (CSR) and sustainability by managers over the past decade, as well as an improving quality in ESG assessments because of a reliable corporate disclosure. Thus, despite investors have been applying ESG criteria in their stock – picking operations, the authors found a not positive and statistically significant impact in terms of market premium, when they have been undertaking a socially responsible investment (SRI). Practical implications The findings described above show that ethics is not yet a reliable fundraising tool for Italian-listed companies, despite SRIs having a positive growth rate over past decade. Investors seem to be not pricing CSR on Stock Exchange Market; therefore, listed companies cannot be rewarded with a premium price because of their highly stakeholder oriented behavior. Originality/value This paper explores, for the first time in Italy, when market extra-returns (if any) are related to corporate social performance and how managers leverage ethics to build capital added value.

Subfields: Accounting, Information Systems and Management, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/3e2252d48ae5e32d8460265553da7151edab1c84

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Citations in the corpus

Past, present, and future of sustainable finance: insights from big data analytics through machine learning of scholarly research (2022, unknown): “…ﬁnancial instruments such as social impact bonds (Carè et al., 2020; Giacomantonio, 2017; Rizzello & Kabli, 2020; Torre, et al., 2019), and ESG investing and ﬁrm performance (Alessandrini & Jondeau, 2020; Chen & Mussalli, 2020; Giese et al., 2019; Landi & Sciarelli, 2019; Schramade, 2016).”
Inside the ESG Ratings: (Dis)Agreement and Performance (2020, background): “However, there are other studies leading to different conclusions, for instance, on the absence of a statistical impact (Landi & Sciarelli, 2019) or the presence of very weak effects of only some of the ESG pillars (Miralles-Quir (cid:1) os et al., 2019).”
DOES ENVIRONMENTAL, SOCIAL AND GOVERNANCE PERFORMANCE INFLUENCE ECONOMIC PERFORMANCE? (2020, background): “…amount of empirical studies found a significant relationship between ESG and economic performance (Ambec & Lanoie, 2008; Ferrero-Ferrero et al., 2016; Velte, 2017; Yoon et al., 2018; Zhao et al., 2018) while some found an insignificant relationship (Landi & Sciarelli, 2019; Margolis & Walsh, 2003).”