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Leading or lagging indicators of risk? The informational content of extra-financial performance scores

Author

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  • Amos Sodjahin

    (Université de Moncton and GReFA)

  • Claudia Champagne

    (Université de Sherbrooke and GReFA)

  • Frank Coggins

    (Université de Sherbrooke and GReFA)

  • Roland Gillet

    (Université Paris1 Panthéon-Sorbonne, PRISM, GReFA)

Abstract

This study investigates the informational content of extra-financial agency scoring by examining the relationship between firm beta and extra-financial performance score upgrades and downgrades. Specifically, we study the variations in the extra-financial score of 266 Canadian corporations between 2007 and 2012 with a conditional model. We find no evidence that changes in firm beta precede changes in extra-financial scores. Rather, our results suggest that a firm’s systematic risk increases following a downgrade of its extra-financial performance. In terms of score upgrades, the overall effect is not significant. However, score upgrades for firms with already-high scores predict higher systematic risk, while score upgrades for firms with low scores predict lower systematic risk. These results suggest that extra-financial scores are informational and can be useful to portfolio managers, notably for their risk management strategies.

Suggested Citation

  • Amos Sodjahin & Claudia Champagne & Frank Coggins & Roland Gillet, 2017. "Leading or lagging indicators of risk? The informational content of extra-financial performance scores," Journal of Asset Management, Palgrave Macmillan, vol. 18(5), pages 347-370, September.
    • Handle: RePEc:pal:assmgt:v:18:y:2017:i:5:d:10.1057_s41260-016-0039-y
    DOI: 10.1057/s41260-016-0039-y
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