The purpose of this paper is to examine whether portfolios comprising high‐ranked corporate social performance (CSP) firms out/underperform portfolios comprised of low‐ranked CSP firms. The authors employed a US sample covering the period 1998‐2007.
In the context of the Fama and French model augmented by momentum and industry factors, the authors test the significance of the alpha for a CSP difference portfolio, defined as high‐ranked minus low‐ranked CSP stocks.
The results are consistent with the “no‐linkage” hypothesis, which argues that no significant difference in the risk‐adjusted performance is expected between high‐ and low‐ranked CSP‐formed portfolios. Furthermore, little evidence was found that high‐ or low‐ranked CSP‐formed portfolios, irrespective of the portfolio formation type, systematically differ with regard to performance, size, book‐to‐market or momentum factors.
The authors employ sustainability CSP rankings that focus on environmental, social and governance (ESG) materiality factors, in contrast to many prior studies that solely use KLD ratings or just focus on a subarea of CSP. Moreover, the authors' dataset considerably improves upon previous studies employing similar data in which individual company rankings are not available.
