Now showing 1 - 8 of 8
  • Publication
    Corporate Social Performance and Earnings Quality: The Role of Materiality
    (dfv-Mediengruppe, 2019-06-07)
    This study tests whether firms with high material corporate social performance (CSP) perform better on earnings quality (EQ). I use a cross-sectional sample of 542 European firms from 27 different industries and materiality guidance from the Sustainability Accounting Standards Board (SASB).1 I develop a new measure of material and non-material CSP by recalculating Thomson Reuters ESG scores based on the guidance from SASB. The state-of-the-art measures for EQ are: accruals quality (AQ) and real earnings management (REM). In general, results indicate that firms performing well on material ESG issues (i. e., material CSP firms) have higher AQ. However, I also find that both material and non-material CSP firms engage in more REM. In robustness checks, I corroborate that, in regulated industries, both material and non-material CSP firms show higher AQ. The findings indicate that material CSP is not necessarily a reliable indicator of higher EQ. However, in regulated industries, more socially and environmentally responsible firms tend to refrain from managing their earnings. Moreover, I find that firms tend to use real earnings management as a substitute for manipulating accruals in general.
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  • Publication
    Corporate Social Performance and Class Action Lawsuits
    We examine the relationship between corporate social performance and US class action lawsuits. Previous business ethics research suggests that corporate social performance has risk management characteristics, reduces information asymmetries, and offers insurance-like effects in cases of litigation. We find that a one standard deviation increase in our measure for business ethics controversies of an average firm reduces its risk to face a US class action lawsuit by 15%. Moreover, on average, firms with high corporate social performance exhibit approximately 50% lower negative abnormal returns around a class action lawsuit filing than firms with lower corporate social performance. Our findings are important to understand the potential of corporate social performance to reduce information asymmetry and to shield against negative market impacts during corporate crisis.
  • Publication
    Effects of CSR Performance and Disclosure on Institutional Ownership
    (The International Academic Forum (IAFOR) - Official Conference Proceedings, 2017-07) ;
    This study investigates correlations and lead-lag relationships between Corporate Social Responsibility (CSR) and the institutional ownership base of North American and European utility companies. The utility sector belongs to the best CSR performing sectors according to CSR scores and is generally seen as fairly “environmentally sensitive”. Two samples of 105 and 87 mid- to large-cap utility companies and a panel data regression are used to examine each of the CSR dimensions (environmental, social and governance) between 2011 and 2015. Additionally, a lead-lag analysis establishes causality between the variables. The study finds that while more socially responsible utility companies exhibit greater long-term institutional ownership (LIO), higher corporate governance disclosure and performance is accompanied by less long-term and greater short-term institutional ownership. The lead-lag analysis entirely supports a causal effect of CSR performance on LIO and a causal effect of LIO on CSR disclosure. The latter finding indicates that it is rather the long-term institutional investor influencing the CSR disclosure than the other way around. As for the short-term horizon, the lead-lag analysis shows a causal effect of CSR performance and disclosure on the short-term institutional ownership base of sample firms. This study contributes to scientific literature by using a recent data set, looking at both the performance and disclosure dimension of CSR. Furthermore, most prior studies have only looked at simple correlations, neglecting the causality issue. This study establishes causality between the variables with a leadlag analysis.
  • Publication
    Corporate Social Performance and Earnings Quality: The Role of Materiality
    ( 2018-09-05)
    This study tests whether managers of firms with high material corporate social performance (CSP) engage less in earnings management. We use a sample of 542 European firms from 27 different industries and materiality guidance from the Sustainability Accounting Standards Board (SASB). Managers of firms with high material CSP are expected to be more determined about ESG issues and thus also about ethical behaviour in general. Results indicate that material CSP firms indeed manipulate their accruals less than non-material CSP firms do. However, we also find that both material and non-material CSP firms engage more strongly in real earnings management. In robustness checks, we further find that the higher accruals quality of material CSP firms dissolves when controlling for regulated and non-regulated industries. Both material and non-material CSP firms in regulated industries exhibit less earnings management through accruals. In contrast, in non-regulated industries, we do not find any statistically significant association between CSP and earnings quality as measured by accruals and real earnings management. Findings of this study further suggest that firms are using real earnings management as a substitute for manipulating accruals.
  • Publication
    Risk Mitigation of Corporate Social Performance in US Class Action Lawsuits
    (CFA Institute, 2020) ;
    We investigate the relationship between corporate social performance and litigation risk by examining US class action lawsuits. We find that a one standard deviation improvement in environmental, social, and governance (ESG) controversies of an average sample firm reduces litigation risk from 3.1% to 2.4%. Moreover, an average sample firm with low ESG performance exhibits losses twice as high in market value compared to a firm with high ESG performance, i.e., an abnormal loss of US $1.14bn. Implementing our findings with a trading strategy yielded positive monthly alphas, suggesting that investors benefit from lower litigation risk and insurance-like protection.
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  • Publication
    Socially Responsible Investment (SRI) - Is There More to Gain or Lose?
    (Institute of Insurance Economics I.VW-HSG, University of St. Gallen, 2018-07)
    This article explores the trend toward Socially Responsible Investment (SRI). This trend has grown from human-made environmental disasters. Among the worst imaginable are the 2010 Deepwater Horizon oil spill and the 2015 Rio Doce contamination in Brazil. Disasters like these have raised public consciousness about Corporate Social Responsibility (CSR) worldwide. Consequently, different kinds of stakeholders are increasingly demanding institutional investors to align financial goals with common non-financial values. Among institutional investors, especially pension funds and insurers have hundreds of billions of assets under management (AUM). These large amounts point to their exceptional importance in terms of promoting CSR. Furthermore, a pension fund’s or insurer’s natural long-term investment perspective makes it even more reasonable to consider environmental, social, and governance (ESG) issues in investment decisions. The trend toward socially and environmentally responsible investment is here referred to as a “process of adaptation.”
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