Corporate Purpose and Value: Evidence from a Novel Measure of Environmental Awareness

54 Pages Posted: 19 Sep 2019 Last revised: 2 Oct 2020

See all articles by Gabriele Lattanzio

Gabriele Lattanzio

Monash University

Lubomir P. Litov

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

Date Written: October 1, 2020

Abstract

We develop a novel metric of environmental corporate social responsibility (CSR) 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 CSR 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 responsibility ratings and that relative – in addition to unitary – environmental CSR metrics are linked to financial performance. We conclude by generalizing our findings to the broader domain of relative corporate social responsibility (CSR) engagements, documenting that environmental ratings drives the relation between a firm overall relative social profile and valuation.

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., Corporate Purpose and Value: Evidence from a Novel Measure of Environmental Awareness (October 1, 2020). SMU Cox School of Business Research Paper No. 19-15, Available at SSRN: https://ssrn.com/abstract=3449259 or http://dx.doi.org/10.2139/ssrn.3449259

Gabriele Lattanzio (Contact Author)

Monash University ( email )

Melbourne
Australia

HOME PAGE: http://www.gabrielelattanzio.com

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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