ESG impact on financial corporate performance and portfolio returns: evidence of Australia and Japan

Autores/as

  • Margarita Chrissanthi Kazakakou Powaski Universidad de Monterrey
  • Carolina Daza Ordoñez Universidad de Monterrey
  • Laura Jáuregui Sánchez Universidad de Monterrey

DOI:

https://doi.org/10.29105/vtga7.2-5

Palabras clave:

ESG, Fixed-effects model regression, Portfolio, Sharpe ratio, Jensen alpha

Resumen

Environmental, Social, and Governance investing has undergone a radical shift; companies and investors have focused on the impact of the disclosure of the practices and policies related to the environment, social responsibility, and governance in their operational strategies and investment. The purpose of this paper is to demonstrate the impact that the ESG policies have on public companies' stock returns in Australia and Japan. Accounting and market-based measures are used to determine the impact ESG practices have on stock market index returns. The annual data used is of companies from Australia's S&P/ASX Index and Japan's Nikkei 225 Index, covering the period from 2005 to 2019. Fixed effect model regression was used to test the significant relationship between companies' stock returns and ESG score, accounting, and market-based measures. Portfolios were created to analyze the risk/return relationship between companies with and without ESG across countries. The findings indicate mixed results. Australia´s non-ESG portfolios outperform the S&P500 and ESG portfolios. Japan´s portfolio has positive returns but underperforms the benchmark. Low market capitalization portfolios with and without ESG outperform the higher capitalization portfolios.

 

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Citas

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Chow, C. W., & Wong-Boren, A. (1987). Voluntary Financial Disclosure by Mexican Corporations. The Accounting Review, LXII(3).

Clarke, C., & Friedman, H. H. (2016). Maximizing Shareholder Value: A theory Run Amok. SSRN Electronic Journal, 1–34. https://ssrn.com/abstract=2796836

Cochran, P. L., & Wood, R. A. (2014). Corporate Social Responsibility and Financial Performance. The Academy of Management Journal, 27(1), 42–56. DOI: https://doi.org/10.2307/255956

Cuadrado-Ballesteros, B., Garcia-Sanchez, I. M., & Martinez Ferrero, J. (2016). How are corporate disclosures related to the cost of capital? The fundamental role of information asymmetry. Management Decision, 54(7), 1669–1701. https://doi.org/10.1108/MD-10-2015-0454 DOI: https://doi.org/10.1108/MD-10-2015-0454

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DVFA, & EFFAS. (2009). Key Performance Indicators for Environmental, Social and Governance Issues - A Guideline for Corporates on how to Report on ESG and a Benchmark for Investment Professionals on how to integrate ESG into Financial Analysis, 8. https://effas.net/pdf/setter/DVFA criteria for non-financials.pdf

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Fabozzi, F. J., Ma, K. C., & Oliphant, B. J. (2008). Sin stock returns. Journal of Portfolio Management, 35(1), 82–94. https://doi.org/10.3905/JPM.2008.35.1.82 DOI: https://doi.org/10.3905/JPM.2008.35.1.82

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18-12-2021

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Kazakakou Powaski, M. C., Daza Ordoñez, C., & Jáuregui Sánchez, L. (2021). ESG impact on financial corporate performance and portfolio returns: evidence of Australia and Japan. Vinculatégica EFAN, 7(1), 53–78. https://doi.org/10.29105/vtga7.2-5