IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-03227627.html
   My bibliography  Save this paper

Do the ESG scores help to select the most successful companies?

Author

Listed:
  • Frederique Bardinet Evraert

    (IRGO - Institut de Recherche en Gestion des Organisations - UB - Université de Bordeaux - Institut d'Administration des Entreprises (IAE) - Bordeaux)

  • Serge Evraert

    (IRGO - Institut de Recherche en Gestion des Organisations - UB - Université de Bordeaux - Institut d'Administration des Entreprises (IAE) - Bordeaux)

Abstract

Financial performance, the main purpose for the investors, is easily measured by financial reporting. On the other hand, its numerous causes, for example the combination of the knowledge and the acts of the employees of the company, remain anonymous and are not reported. This article uses the ESG scores measured by financial analysts and portfolio managers of a French SRI fund to assess the respective influences of environmental, social, governance activities in order to select the most successful companies. For that, these scores are combined with a set of financial indicators of 143 European listed companies, collected from the database of the SRI Fund. The Companies are followed over a period of 5 years. Governance scores are significant but not those related to the environment and social activities. In order to explain the discriminant power of governance, its scores are broken down into sub-scores. The tests are significant for financial communication: the reliability of published information, the transparency, quality and stability of the management team as well as for organizational characteristics such as the separation of tasks and the quality of internal control. The results confirm the classification of companies in the two chosen categories which differ in their level of financial performance. The results suggest that governance activities are highly valued by financial analysts. This should encourage business leaders and their teams to put in place an effective governance policy. The argument is equally strong for practitioners, especially portfolio managers, who should not underestimate governance issues in their search of the most successful companies.

Suggested Citation

  • Frederique Bardinet Evraert & Serge Evraert, 2019. "Do the ESG scores help to select the most successful companies?," Post-Print hal-03227627, HAL.
    • Handle: RePEc:hal:journl:hal-03227627
    Note: View the original document on HAL open archive server: https://hal.science/hal-03227627
    as

    Download full text from publisher

    File URL: https://hal.science/hal-03227627/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nadja Guenster & Rob Bauer & Jeroen Derwall & Kees Koedijk, 2011. "The Economic Value of Corporate Eco†Efficiency," European Financial Management, European Financial Management Association, vol. 17(4), pages 679-704, September.
    2. Bebchuk, Lucian A. & Cohen, Alma & Wang, Charles C.Y., 2013. "Learning and the disappearing association between governance and returns," Journal of Financial Economics, Elsevier, vol. 108(2), pages 323-348.
    3. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1986. "Fairness and the Assumptions of Economics," The Journal of Business, University of Chicago Press, vol. 59(4), pages 285-300, October.
    4. Halbritter, Gerhard & Dorfleitner, Gregor, 2015. "The wages of social responsibility — where are they? A critical review of ESG investing," Review of Financial Economics, Elsevier, vol. 26(C), pages 25-35.
    5. Manuel Branco & Lúcia Rodrigues, 2006. "Corporate Social Responsibility and Resource-Based Perspectives," Journal of Business Ethics, Springer, vol. 69(2), pages 111-132, December.
    6. Yasemin Y. Kor & Huseyin Leblebici, 2005. "How do interdependencies among human‐capital deployment, development, and diversification strategies affect firms' financial performance?," Strategic Management Journal, Wiley Blackwell, vol. 26(10), pages 967-985, October.
    7. Shunsuke Managi & Tatsuyoshi Okimoto & Akimi Matsuda, 2012. "Do socially responsible investment indexes outperform conventional indexes?," Applied Financial Economics, Taylor & Francis Journals, vol. 22(18), pages 1511-1527, September.
    8. Sebastian Rathner, 2013. "The Influence of Primary Study Characteristics on the Performance Differential Between Socially Responsible and Conventional Investment Funds: A Meta-Analysis," Journal of Business Ethics, Springer, vol. 118(2), pages 349-363, December.
    9. Richard Fairchild, 2008. "The Manufacturing Sector’s Environmental Motives: A Game-theoretic Analysis," Journal of Business Ethics, Springer, vol. 79(3), pages 333-344, May.
    10. Bruce Clemens & Lynn Bakstran, 2010. "A framework of theoretical lenses and strategic purposes to describe relationships among firm environmental strategy, financial performance, and environmental performance," Management Research Review, Emerald Group Publishing Limited, vol. 33(4), pages 393-405, March.
    11. Marc Orlitzky & Diane L. Swanson, 2008. "Corporate Social and Financial Performance: An Integrative Review," Palgrave Macmillan Books, in: Toward Integrative Corporate Citizenship, chapter 4, pages 83-120, Palgrave Macmillan.
    12. Edmans, Alex, 2011. "Does the stock market fully value intangibles? Employee satisfaction and equity prices," Journal of Financial Economics, Elsevier, vol. 101(3), pages 621-640, September.
    13. Judith F. Posnikoff, 1997. "Disinvestment From South Africa: They Did Well By Doing Good," Contemporary Economic Policy, Western Economic Association International, vol. 15(1), pages 76-86, January.
    14. Rod Shrader & Donald S. Siegel, 2007. "Assessing the Relationship between Human Capital and Firm Performance: Evidence from Technology–Based New Ventures," Entrepreneurship Theory and Practice, , vol. 31(6), pages 893-908, November.
    15. Barth, Me & Mcnichols, Mf, 1994. "Estimation And Market Valuation Of Environmental Liabilities Relating To Superfund Sites," Journal of Accounting Research, Wiley Blackwell, vol. 32, pages 177-209.
    16. Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "Socially responsible investments: Institutional aspects, performance, and investor behavior," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1723-1742, September.
    17. Noel Capon & John U. Farley & Scott Hoenig, 1990. "Determinants of Financial Performance: A Meta-Analysis," Management Science, INFORMS, vol. 36(10), pages 1143-1159, October.
    18. Rajiv D. Banker & Raj Mashruwala, 2007. "The Moderating Role of Competition in the Relationship between Nonfinancial Measures and Future Financial Performance," Contemporary Accounting Research, John Wiley & Sons, vol. 24(3), pages 763-793, September.
    19. André de Waal, 2011. "Characteristics of High Performance Organizations," Working Papers 2011/04, Maastricht School of Management.
    20. Jordi Surroca & Josep A. Tribó, 2008. "Managerial Entrenchment and Corporate Social Performance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(5‐6), pages 748-789, June.
    21. Diego Prior & Jordi Surroca & Josep A. Tribó, 2008. "Are Socially Responsible Managers Really Ethical? Exploring the Relationship Between Earnings Management and Corporate Social Responsibility," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(3), pages 160-177, May.
    22. Aaron K. Chatterji & David I. Levine & Michael W. Toffel, 2009. "How Well Do Social Ratings Actually Measure Corporate Social Responsibility?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(1), pages 125-169, March.
    23. Najah Attig & Sadok El Ghoul & Omrane Guedhami & Jungwon Suh, 2013. "Corporate Social Responsibility and Credit Ratings," Journal of Business Ethics, Springer, vol. 117(4), pages 679-694, November.
    24. Thomas P. Lyon & John W. Maxwell, 2008. "Corporate Social Responsibility and the Environment: A Theoretical Perspective," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(2), pages 240-260, Summer.
    25. Elizabeth Ooi & Paul Lajbcygier, 2013. "Virtue Remains After Removing Sin: Finding Skill Amongst Socially Responsible Investment Managers," Journal of Business Ethics, Springer, vol. 113(2), pages 199-224, March.
    26. Khaled Hussainey & Aly Salama, 2010. "The importance of corporate environmental reputation to investors," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 11(3), pages 229-241, November.
    27. Isaksson, Lars E. & Woodside, Arch G., 2016. "Modeling firm heterogeneity in corporate social performance and financial performance," Journal of Business Research, Elsevier, vol. 69(9), pages 3285-3314.
    28. Hasseldine, J. & Salama, A.I. & Toms, J.S., 2005. "Quantity versus quality: the impact of environmental disclosures on the reputations of UK Plcs," The British Accounting Review, Elsevier, vol. 37(2), pages 231-248.
    29. Jordi Surroca & Josep A. Tribó & Sandra Waddock, 2010. "Corporate responsibility and financial performance: the role of intangible resources," Strategic Management Journal, Wiley Blackwell, vol. 31(5), pages 463-490, May.
    30. Baruch Lev & Christine Petrovits & Suresh Radhakrishnan, 2010. "Is doing good good for you? how corporate charitable contributions enhance revenue growth," Strategic Management Journal, Wiley Blackwell, vol. 31(2), pages 182-200, February.
    31. Aaron K. Chatterji & Rodolphe Durand & David I. Levine & Samuel Touboul, 2016. "Do ratings of firms converge? Implications for managers, investors and strategy researchers," Strategic Management Journal, Wiley Blackwell, vol. 37(8), pages 1597-1614, August.
    32. Nile W. Hatch & Jeffrey H. Dyer, 2004. "Human capital and learning as a source of sustainable competitive advantage," Strategic Management Journal, Wiley Blackwell, vol. 25(12), pages 1155-1178, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wong, Jin Boon & Zhang, Qin, 2022. "Stock market reactions to adverse ESG disclosure via media channels," The British Accounting Review, Elsevier, vol. 54(1).
    2. Frédérique Bardinet, 2016. "Comparaison de trois méthodologies ESG : les différences de notations des bases de données extra financières," Post-Print hal-01900607, HAL.
    3. Isabel Lourenço & Jeffrey Callen & Manuel Branco & José Curto, 2014. "The Value Relevance of Reputation for Sustainability Leadership," Journal of Business Ethics, Springer, vol. 119(1), pages 17-28, January.
    4. Jedynak Tomasz, 2017. "Is it Worth Being Good? – The Efficiency and Risk of Socially Responsible Investing in Light of Various Empirical Studies," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 13(3), pages 1-14, September.
    5. Rimsha Naz & Danish Ahmed Siddiqui, 2021. "Exploring the Link between Corporate Reputation with Sustainability Leadership and Market Valuation: A Comparative Analysis of Award and Non-Award Companies in PSX," Global Journal of Educational Studies, Macrothink Institute, vol. 7(1), pages 19-53, June.
    6. Sebastian Utz, 2018. "Over‐investment or risk mitigation? Corporate social responsibility in Asia‐Pacific, Europe, Japan, and the United States," Review of Financial Economics, John Wiley & Sons, vol. 36(2), pages 167-193, April.
    7. Mujeeb Saif Mohsen Al-Absy & Redhwan Al-Dhamari & Hamid Abdulkhaleq Hasan Al-Wesabi & Khaldoon Albitar, 2024. "Are country-level political uncertainty and power distance important to the CSR-audit report lag nexus? Evidence from the GCC region," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 14(3), pages 483-515, July.
    8. Iordanis Kalaitzoglou & Hui Pan & Jacek Niklewski, 2021. "Corporate social responsibility: How much is enough? A higher dimension perspective of the relationship between financial and social performance," Annals of Operations Research, Springer, vol. 306(1), pages 209-245, November.
    9. Kwang Hwa Jeong & Seok Woo Jeong & Woo Jae Lee & Seong Ho Bae, 2018. "Permanency of CSR Activities and Firm Value," Journal of Business Ethics, Springer, vol. 152(1), pages 207-223, September.
    10. Encarna Guillamon-Saorin & Magdalena Kapelko & Spiro E. Stefanou, 2018. "Corporate Social Responsibility and Operational Inefficiency: A Dynamic Approach," Sustainability, MDPI, vol. 10(7), pages 1-26, July.
    11. Amal Aouadi & Sylvain Marsat, 2018. "Do ESG Controversies Matter for Firm Value? Evidence from International Data," Journal of Business Ethics, Springer, vol. 151(4), pages 1027-1047, September.
    12. María del Mar Miras‐Rodríguez & Amalia Carrasco‐Gallego & Bernabé Escobar‐Pérez, 2015. "Are Socially Responsible Behaviors Paid Off Equally? A Cross‐cultural Analysis," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 22(4), pages 237-256, July.
    13. Wang, Kai & Li, Tingting & San, Ziyao & Gao, Hao, 2023. "How does corporate ESG performance affect stock liquidity? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    14. Zhang, Jiawei & Li, Yuan & Xu, Hanwen & Ding, Yi, 2023. "Can ESG ratings mitigate managerial myopia? Evidence from Chinese listed companies," International Review of Financial Analysis, Elsevier, vol. 90(C).
    15. Jun Li & Di (Andrew) Wu, 2020. "Do Corporate Social Responsibility Engagements Lead to Real Environmental, Social, and Governance Impact?," Management Science, INFORMS, vol. 66(6), pages 2564-2588, June.
    16. Juhee Hwang & Hyuna Kim & Dongjin Jung, 2021. "The Effect of ESG Activities on Financial Performance during the COVID-19 Pandemic—Evidence from Korea," Sustainability, MDPI, vol. 13(20), pages 1-17, October.
    17. Radhakrishnan, Suresh & Tsang, Albert & Liu, Rubing, 2018. "A Corporate Social Responsibility Framework for Accounting Research," The International Journal of Accounting, Elsevier, vol. 53(4), pages 274-294.
    18. Alan Gregory & Rajesh Tharyan & Julie Whittaker, 2014. "Corporate Social Responsibility and Firm Value: Disaggregating the Effects on Cash Flow, Risk and Growth," Journal of Business Ethics, Springer, vol. 124(4), pages 633-657, November.
    19. Jennifer Martínez-Ferrero & Shantanu Banerjee & Isabel María García-Sánchez, 2016. "Corporate Social Responsibility as a Strategic Shield Against Costs of Earnings Management Practices," Journal of Business Ethics, Springer, vol. 133(2), pages 305-324, January.
    20. Patricia Crifo & Vanina Forget, 2013. "La responsabilité sociale et environnementale des entreprises : mirage ou virage ?," Working Papers hal-00830642, HAL.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-03227627. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.