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The impact of corporate social responsibility on corporate financial performance and credit ratings in Japan

Author

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  • Frank J. Fabozzi

    (EDHEC Business School)

  • Peck Wah Ng

    (EDHEC Business School)

  • Diana E. Tunaru

    (University of Kent, Kent Business School)

Abstract

We investigate the impact of companies’ sustainability efforts on their corporate financial performance (CFP) and credit ratings in Japan, based on a new proxy for corporate social responsibility (CSR)—Sustainalytics’ quantitative Environment, Social and Governance (ESG) ratings. We find weak evidence of a negative impact of ESG scores (on an aggregated basis and disaggregated basis) on several accounting measures of CFP. Our quantile regression results reveal a nonlinear pattern across the quantiles, with CSR effects intensifying at the extremal quantiles. However, we find a weak positive relationship between ESG and stock market-based measures, as well as between ESG and credit ratings. Our findings suggest that investors, credit rating agencies (CRAs) and regulators should differentiate between the three types of ESG screening as they interact and contribute in their specific way to the aggregate ESG effect.

Suggested Citation

  • Frank J. Fabozzi & Peck Wah Ng & Diana E. Tunaru, 2021. "The impact of corporate social responsibility on corporate financial performance and credit ratings in Japan," Journal of Asset Management, Palgrave Macmillan, vol. 22(2), pages 79-95, March.
    • Handle: RePEc:pal:assmgt:v:22:y:2021:i:2:d:10.1057_s41260-021-00204-6
    DOI: 10.1057/s41260-021-00204-6
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    2. Agliardi, Elettra & Alexopoulos, Thomas & Karvelas, Kleanthis, 2023. "The environmental pillar of ESG and financial performance: A portfolio analysis," Energy Economics, Elsevier, vol. 120(C).
    3. Jagvinder Singh & Varda Sardana & Shubham Singhania, 2024. "Beyond compliance: the business case for gender diversity on boards and sustainability reporting in India," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 15(6), pages 2284-2293, June.
    4. Jaspreet Kaur & Madhu Vij & Ajay Kumar Chauhan, 2023. "Signals influencing corporate credit ratings—a systematic literature review," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 50(1), pages 91-114, March.
    5. Marashdeh, Hazem & Dhiaf, Mohamed M. & Atayah, Osama F. & Nasrallah, Nohade & Frederico, Guilherme F. & Najaf, Khakan, 2023. "Sensitivity of market performance to social risk index: Evidence from global listed companies in logistics and transportation industry," Socio-Economic Planning Sciences, Elsevier, vol. 87(PA).
    6. Gigante, Gimede & Manglaviti, Davide, 2022. "The ESG effect on the cost of debt financing: A sharp RD analysis," International Review of Financial Analysis, Elsevier, vol. 84(C).
    7. Gebhardt, Beate & Hellstern, Laura, 2023. "Die Kraft von Awards. Umfrage unter Unternehmen und Vergabeinstitutionen in Deutschland 2023," Working Papers 338798, Universitaet Hohenheim, Institute of Agricultural Policy and Agricultural Markets.

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    More about this item

    Keywords

    Corporate social responsibility; Corporate financial performance; Credit ratings; Environment; social and governance ratings; Quantile regression;
    All these keywords.

    JEL classification:

    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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