Patience Pays Off - Financial Long-Term Benefits of Sustainable Management Decisions

57 Pages Posted: 5 Dec 2014

See all articles by Gregor Dorfleitner

Gregor Dorfleitner

University of Augsburg - Department of Statistics and Mathematical Economic Theory; University of Regensburg - Department of Finance

Sebastian Utz

University of St. Gallen - School of Finance

Maximilian Wimmer

University of Regensburg; University of Mannheim - Finance Area

Date Written: December 4, 2014

Abstract

This paper quantifies the long-term financial effects of strong (weak) corporate social performance (CSP). We contribute to the literature by seeking such effects on a broad range, i.e. different CSP dimensions which are depicted by so-called ESGEc scores - an acronym for environment, social, governance, and economic - and for 18 sub-scores of these four dimensions. Our central strategy is to analyze the time structure of abnormal firm returns dependent on CSP rating data. We find positive mid- and long-term effects in all four dimensions of up to 6.82% abnormal return with respect to a change from the lowest to the highest possible ESGEc score. These effects are robust to controlling for common risk factors, accounting data, and industry fixed effects. We identify market inefficiencies for certain sub-scores and verify that the economic channel for the appreciation of strong CSP stocks are both additional cash flows and additional demand during our sample period. Thus, investments in firms with a high CSP are profitable in the long run.

Keywords: Investment, Corporate Social Performance, BHAR, Abnormal Returns, Market Efficiency

JEL Classification: G14, G30, G11, Q56

Suggested Citation

Dorfleitner, Gregor and Dorfleitner, Gregor and Utz, Sebastian and Wimmer, Maximilian, Patience Pays Off - Financial Long-Term Benefits of Sustainable Management Decisions (December 4, 2014). Available at SSRN: https://ssrn.com/abstract=2533957 or http://dx.doi.org/10.2139/ssrn.2533957

Gregor Dorfleitner

University of Augsburg - Department of Statistics and Mathematical Economic Theory ( email )

Augsburg, 86135
Germany

University of Regensburg - Department of Finance ( email )

Regensburg, 93040
Germany

Sebastian Utz

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Maximilian Wimmer (Contact Author)

University of Regensburg ( email )

Universitaetsstrasse 31
Regensburg, 93053
Germany
+49 941 943 2672 (Phone)

HOME PAGE: http://www-finance.uni-regensburg.de/Team/Maximilian-Wimmer.html

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

HOME PAGE: http://cf.bwl.uni-mannheim.de/

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