Performance assessment and ranking of socially responsible companies in India using FAHP, TOPSIS and Altman Z-score

Abstract

Purpose

The present study aims to determine and benchmark the performance of socially responsible companies (SRCs) in India based on the financial, value-added and combined performance indicators by addressing the climate change problems at the grass-root level.

Design/methodology/approach

The present study has used the traditional financial, value-added and combined performance indicators to evaluate and rank the performance of 14 SRCs under the Bombay stock exchange (BSE)-Greenex sustainability index. The technique for order performance by similarity to ideal solution (TOPSIS) and fuzzy analytic hierarchy process (FAHP) algorithms calculate performance scores and assign weights to the indicators from 2015 to 2019. Further, the Altman Z-score methodology has been applied to understand the SRCs propensity toward bankruptcy behavior. The parametric t-test is also performed on the outcomes of TOPSIS scores under different categories of indicators to check the statistical significance.

Findings

The performance scores of the TOPSIS algorithm indicate that the financial indicators of SRCs govern the firm performance significantly over the value-added indicators (VAIs). Further, parametric t-test results validate the outcomes of the performance scores by exhibiting that there is no significant difference between the traditional financial and VAIs at a 5% significance level. However, a few SRCs overall performance rankings have improved significantly after including VAIs. Moreover, the Altman Z-score results also reveal that most of the SRCs evaluated in the study are stable, showcasing consistent performance and absent from bankruptcy behavior.

Practical implications

The study has practical implications as follows: (1) to facilitate a clear understanding of investors and portfolio managers in selecting appropriate companies under socially responsible investing (SRI); (2) to provide portfolio diversification insights for domestic and international investors besides advocating the necessity of investing in better performing sustainable companies to safeguard their investments against the future uncertainty and (3) the study results would benefit the regulatory bodies to frame appropriate sustainability policy interventions at the organization level.

Originality/value

In the context of ambiguous inferences on the performance of SRI, no prior study has been conducted to assess the performance of SRCs in the Indian version of sustainability index BSE-Greenex.

Citation

Bhuvaneskumar, A., Sivakumar, V.J. and Pushparaj, N. (2023), "Performance assessment and ranking of socially responsible companies in India using FAHP, TOPSIS and Altman Z-score", Benchmarking: An International Journal, Vol. 30 No. 3, pp. 736-765. https://doi.org/10.1108/BIJ-09-2021-0512