The purpose of this paper is to examine the performance of portfolios that are constructed based on environmental, social and governance (ESG) scores and consist of stocks located…
Abstract
Purpose
The purpose of this paper is to examine the performance of portfolios that are constructed based on environmental, social and governance (ESG) scores and consist of stocks located in Europe and Turkey.
Design/methodology/approach
In order to form the portfolios, firstly all stocks are ranked in a descending way based on ESG-based (ESG, environmental, social and governance) scores, separately. Then, 10% of stocks with the highest scores are included in the “Top” portfolio and 10% of stocks with the lowest scores are included in “Bottom” portfolio and totally performance of eight portfolios are investigated. Finally, capital asset pricing model (CAPM) and Fama-French three-factor model are employed as performance measurement benchmarks.
Findings
Results obtained from CAPM regression show that using ESG-based scores two portfolios underperform the market index. The results of the three-factor model provide that performances of Bottom ESG and Bottom GOV portfolios outperform the market excess return by 0.57% and 0.53%. The overall findings of this paper indicate that there is no relationship between socially responsible investment (SRI) and portfolio performance. These findings are in line with the efficient market hypothesis which indicates all information is reflected in prices.
Originality/value
The aim of the study is to provide insight on the question of “whether SRI has any effect on the portfolio performance”. As far as the literature review is concerned it is seen that this study provide additional insight by utilizing a longer time span together with data from numerous markets.
Details
Keywords
Guler Aras, Asli Aybars and Ozlem Kutlu
Corporate social responsibility (CSR) has become one of the mainstream issues for sustainable corporate performance in recent decades. Engagement in CSR activities has proven to…
Abstract
Purpose
Corporate social responsibility (CSR) has become one of the mainstream issues for sustainable corporate performance in recent decades. Engagement in CSR activities has proven to have certain benefits for companies, ranging from better financial performance to shareholder wealth maximisation. Companies' value creation process has been dominated by companies' hidden assets and concurrently the concept of value added intellectual capital (VAIC). The purpose of this study is to provide evidence from an emerging market about the interaction between CSR and VAIC, and thus contribute to the understanding and awareness of the significance of socially responsible investments for companies.
Design/methodology/approach
The empirical analyses, which take into account VAIC and its dimensions, are conducted on a sample of manufacturing companies listed on the Istanbul Stock Exchange (ISE) during the period 2007‐2008. It is shown that some causality is related to the existence of a lag during the periods for the variables CSR and VAIC. Based on previous empirical studies, this study conducts the analyses based on the assumption that there may be a relationship between firm age, financial leverage, return on sales and market‐to‐book ratio and CSR.
Findings
The results fail to provide any significant relationship between CSR and VAIC during the period analysed. These findings should not overshadow the benefits of CSR, but should be attributed to the time it takes for these investments to have an impact on firms' intellectual capital.
Practical implications
A larger sample of firms covering a longer time span could be utilised. Generation of a CSR index in Turkey that eliminates the subjectivity of CSR measurement will undoubtedly improve the accuracy of the analyses.
Originality/value
This paper increases the understanding of the relationship between corporate social responsibility and value‐added intellectual capital. This research is also the first research to have examined Turkish companies for CSR and VAIC issues.