New Stories From Old Data? Evidence From a Novel KLD Measure of Relative Environmental Responsibility

58 Pages Posted: 19 Sep 2019 Last revised: 4 Oct 2021

See all articles by Gabriele Lattanzio

Gabriele Lattanzio

The University of Melbourne, Faculty of Business and Economics, Department of Economics

Lubomir P. Litov

University of Oklahoma - Michael F. Price College of Business; University of Pennsylvania - Wharton Financial Institutions Center

Date Written: September 25, 2021

Abstract

We develop a novel KLD-based metric of environmental corporate responsibility rivalry capturing the sustainability engagements of a firm relative to its “green” and “toxic” peers. We document that our measure has superior predictive power about firms’ future pollution levels when compared to alternative unitary environmental scores. Our results show that firms with superior relative environmental performance exhibit higher sales growth, profitability, corporate valuation, and future stock returns, suggesting that firms compete in the market for environmental corporate ratings and that relative – in addition to unitary – environmental metrics are linked to financial performance.

Keywords: corporate social responsibility; ESG (environmental, social, governance) performance; KLD data; ratings; performance measurement; competitive advantage; reputational capital; sustainability

JEL Classification: M14; G30; G32

Suggested Citation

Lattanzio, Gabriele and Litov, Lubomir P., New Stories From Old Data? Evidence From a Novel KLD Measure of Relative Environmental Responsibility (September 25, 2021). Available at SSRN: https://ssrn.com/abstract=3449259 or http://dx.doi.org/10.2139/ssrn.3449259

Gabriele Lattanzio (Contact Author)

The University of Melbourne, Faculty of Business and Economics, Department of Economics ( email )

Level 4, Faculty of Business and Economics
111 Barry Street
Carlton, VIC 3010
Australia

Lubomir P. Litov

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

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