Strategic Sustainability and Financial Performance: Exploring Abnormal Returns

The ongoing empirical debate about whether SRI is associated, if anything, with subpar or surpassing financial performance is characterized by a somewhat indistinct focus and the infeasibility of tapping the full potential of existing models. By indistinct focus, we mean an analysis based on an aggregation of a myriad of SRI factors that potentially affect a firm’s financial performance. The inability of taking full advantage of existing models is reflected by the fact that studies with European data have not been able to comprehensively account for systematic risk tilts. This paper presents a portfolio analysis that overcomes these issues by analyzing a distinct selection of small and innovative firms. We argue that both their strategic implementation of Corporate Social Responsibility and the general growth in socially responsible investments (SRI) lend themselves to an explanation for positive abnormal returns of this portfolio. We account for the idiosyncratic investment style of SRI by introducing a comprehensive panEuropean risk-adjusted portfolio analysis based on the Carhart four-factor model. A novel propensity score matching method in conjunction with the estimation of structural models completes the conventional robustness checks in the literature. DOI: https://doi.org/10.1007/s11573-013-0664-6 Posted at the Zurich Open Repository and Archive, University of Zurich ZORA URL: https://doi.org/10.5167/uzh-79391 Accepted Version Originally published at: Mollet, Janick Christian; von Arx, Urs; Ilic, Dragan (2013). Strategic sustainability and financial performance: Exploring abnormal returns. Zeitschrift für Betriebswirtschaft, 83(6):577-604. DOI: https://doi.org/10.1007/s11573-013-0664-6 Strategic Sustainability and Financial Performance: Exploring Abnormal Returns Janick Christian Mollet , Urs von Arx, and Dragan Ilić Center for Corporate Responsibility and Sustainability (CCRS), UZH Center of Economic Research (CER), ETH Zurich Faculty of Business and Economics, University of Basel