When Do Appointments of Corporate Sustainability Executives Affect Shareholder Value?

42 Pages Posted: 28 Apr 2017 Last revised: 17 Oct 2019

See all articles by Priyank Arora

Priyank Arora

University of Massachusetts Amherst - Isenberg School of Management

Manpreet Hora

Georgia Institute of Technology; Georgia Institute of Technology - Scheller College of Business

Vinod R. Singhal

Georgia Institute of Technology - Scheller College of Business

Ravi Subramanian

Georgia Institute of Technology - Scheller College of Business

Date Written: March 28, 2017

Abstract

Over the last two decades, firms have been appointing corporate sustainability executives (CSEs) to be part of their top management teams. Although there is a vast literature on sustainable practices and their relationships with various measures of firm performance, little is known about the nature of the empirical link between CSE appointments and financial performance. We add to the understanding of this link by estimating the stock market reactions to a sample of 115 announcements of CSE appointments made by firms during the period 2000–2018. Our findings using event study methodology, followed by regression analyses, suggest that although the stock market reaction to CSE appointments is not significantly different from zero, the stock market reacts more, or less positively under certain firm- and industry-specific conditions. We find that the stock market reaction is more positive in instances where the announcing firms faced a prior adverse sustainability-related incident, and less positive when announcing firms operate in industries that face relatively greater levels of regulatory sanctions. Also, we find that the stock market reaction is more positive when firms announce CSE appointments with focused as compared to broad responsibilities. Additionally, we find that CSE appointments are associated with subsequent improvements in operating performance – partly driven by a decrease in total costs and partly by an increase in sales. Overall, our findings support the strategy of appointing CSEs to top management teams and enable executives and stakeholders to more deeply understand the shareholder value and operating performance effects of appointing CSEs.

Keywords: corporate sustainability executives; sustainability leadership; prior adverse incident; regulatory sanctions; stock market reaction; event study

Suggested Citation

Arora, Priyank and Hora, Manpreet and Singhal, Vinod R. and Subramanian, Ravi, When Do Appointments of Corporate Sustainability Executives Affect Shareholder Value? (March 28, 2017). Georgia Tech Scheller College of Business Research Paper No. 17-17. Available at SSRN: https://ssrn.com/abstract=2959705 or http://dx.doi.org/10.2139/ssrn.2959705

Priyank Arora

University of Massachusetts Amherst - Isenberg School of Management ( email )

Amherst, MA 01003-4910
United States

Manpreet Hora

Georgia Institute of Technology ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Vinod R. Singhal (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Ravi Subramanian

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

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