ESG Investing and the Financial Performance: A Panel Data Analysis of Developed REIT Markets

Abstract

This study investigates the empirical link between the social and financial performance of the Real Estate Investment Trusts (REITs) by utilizing the PVAR-Granger causality model and a fixed-effects panel data model with a rich dataset comprising 234 ESG-rated REITs across five developed economies from 2003 to 2019. The results suggest that investors pay attention to individual E/S/G metrics and price each component of ESG investing differently, with E-investing and S-investing practices being the significant financial performance factors of REITs. This study is the first attempt to test the social impact and risk mitigation hypotheses of the stakeholder theory of the corporation and the neoclassic trade-off argument to explore the association between corporate social responsibility and the market valuation of REITs. The full sample results strongly support the trade-off hypothesis, indicating that REITs’ environmental policies involve high financial costs that may drain off capital and lead to decreasing market returns. On the contrary, investors have attached a higher value to S-investing performance, especially in the post-GFC period from 2011 to 2019. A positive premium for S-investing supports the stakeholder theory as the social impact could be monetarized into a higher return and a lower systematic risk and give rise to a competitive advantage. JEL Codes: G11; G15; G32; M14

Analysis of REITs in the Post-epidemic Era: Evidence from Boshi Shekou Industrial Park

“…To lay the foundation of new financing channels and promote REITs in other fields, infrastructure REITs are necessary to implement [4]. Therefore, it is of practical significance to analyze the depressed market situation of domestic REITs and find solutions to them [5][6][7][8].…”