The Value Relevance of Reputation for Sustainability Leadership

Posted: 28 Jan 2013 Last revised: 24 Jul 2016

See all articles by Isabel Lourenço

Isabel Lourenço

Lisbon University Institute (ISCTE-IUL); University of São Paulo (USP)

Jeffrey L. Callen

University of Toronto - Rotman School of Management

Manuel Castelo Branco

University of Porto - Faculty of Economics

José Dias Curto

ISCTE - IUL Business School

Date Written: January 16, 2013

Abstract

Using a two-regime switching regression approach to account for the endogeneity of sustainability reputation, this study investigates whether the market valuation of two summary accounting measures, book value of equity and net income, is higher for firms with a reputation for sustainability leadership, when compared to firms that do not enjoy such reputation. The results are interpreted through the lens of a framework combining signalling theory and resource-based theory, according to which firms signal their commitment to sustainability to influence the external perception of reputation. A firm’s reputation for being committed to sustainability is an intangible resource that can increase the value of a firm’s expected cash flows and/or reduce the variability of its cash flows. Our findings are according to expectations and show that the net income of firms with good sustainability reputation has a higher valuation by the market, when compared to their counterparts.

Keywords: Corporate sustainability, Reputation, Value relevance

JEL Classification: M14, M40, D64

Suggested Citation

Lourenço, Isabel and Callen, Jeffrey L. and Branco, Manuel Castelo and Dias Curto, José, The Value Relevance of Reputation for Sustainability Leadership (January 16, 2013). Journal of Business Ethics, 119 (1), pp. 17-28, 2014., Rotman School of Management Working Paper No. 2201998, Available at SSRN: https://ssrn.com/abstract=2201998

Isabel Lourenço (Contact Author)

Lisbon University Institute (ISCTE-IUL) ( email )

Complexo Indeg/Iscte
Av. Professor Anibal Bettencourt
Lisbon, 1600-189
Portugal

University of São Paulo (USP) ( email )

Brazil

Jeffrey L. Callen

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-5641 (Phone)
416-971-3048 (Fax)

Manuel Castelo Branco

University of Porto - Faculty of Economics ( email )

Rua Roberto Frias
s/n
4200-464 Porto, 4200-464
Portugal

José Dias Curto

ISCTE - IUL Business School ( email )

Complexo Indeg/Iscte
Av. Professor Anibal Bettencourt
Lisboa, 1600-189
Portugal

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