Capitalizing on Sustainability: The Value of Going Green

44 Pages Posted: 6 Feb 2020

See all articles by Taehyun Kim

Taehyun Kim

University of Notre Dame - Department of Finance

Yongjun Kim

University of Seoul

Date Written: February 2, 2020


We investigate how Corporate Environmental Responsibility (CER) actions affect firm value. First, we adopt an event studies approach using two 5-to-4 Supreme Court rulings and show that firms gain value when they are expected to increase their CER activities. Second, we examine the cross-sectional returns by forming portfolios based on firms’ engagement in the CER activities. A portfolio of firms that enhanced their environmental sustainability by adopting cleaner production practices earns alphas (4.43% annually for value-weighted returns). Firms that reduced toxic chemical emissions show positive earnings surprises, higher revenue and profitability, and greater capital inflow from institutional investors with longer horizons. These return patterns we find in the event studies and portfolio approaches are more pronounced among firms in regions with high levels of trust. In sum, we present empirical evidence consistent with the market viewing CER as leading to higher firm value.

Keywords: Supreme Court rulings, abnormal returns, Corporate Environmental Responsibility, CSR, ESG

JEL Classification: G11, G14, G32, G38, M14

Suggested Citation

Kim, Taehyun and Kim, Yongjun, Capitalizing on Sustainability: The Value of Going Green (February 2, 2020). Available at SSRN: or

Taehyun Kim (Contact Author)

University of Notre Dame - Department of Finance ( email )

259 Mendoza College of Business
Notre Dame, IN Indiana 46556-0399
United States
574-631-1492 (Phone)

Yongjun Kim

University of Seoul ( email )

Korea, Republic of (South Korea)

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