How the Pursuit of Sustainability Poses Tradeoffs Between Legitimacy and Reputational Spillovers

Piyasinchai, Nareuporn; Grimes, Matthew; Loch, Christoph H.

doi:10.5465/ambpp.2021.16

Cited by 3 publications

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“…The agency theory view further suggests that this gap between managers' and shareholders' interest in ESG will lead to agency conflicts and could further hurt a firm's market value during a crisis period. More recent literature highlights the legitimacy theory that posits that firms continuously try to ensure that they carry out ESG activities in conformity with the normative, regulatory and societal norms to stay in conformity with their peers and the good books of stakeholders (Piyasinchai et al, 2021). In the study, Zhang et al (2020) argue that corporate social responsibility (CSR) practices are multidimensional in nature and should be differentiated based on conformity in CSR scope and CSR emphasis.…”

Section: Linkage Between Esg and Market Performance During Normal Periodmentioning

confidence: 99%

“…The importance of CSR scope coverage was found to be more important from a regulatory angle which helps firms to get analyst coverage; whereas the CSR emphasis is more specific and helps firms to differentiate themselves from peers which in turn leads to higher market value. Further, Piyasinchai et al (2021) argue that although conformity positively affects firms' reputation, it could also have a negative spillover effect on firms in an industry where peers are severely criticized, thus outweighing the legitimacy-related gain achieved through conformity. Disaggregating the ESG activities into its components, Cheng et al (2022) found material social activities like social capital and human capital activities have high stock price informativeness and are highly preferred by the institutional investors.…”

Section: Linkage Between Esg and Market Performance During Normal Periodmentioning

confidence: 99%

“…More recent literature highlights the legitimacy theory that posits that firms continuously try to ensure that they carry out ESG activities in conformity with the normative, regulatory and societal norms to stay in conformity with their peers and the good books of stakeholders (Piyasinchai et al ., 2021). In the study, Zhang et al .…”

Section: Literature Reviewmentioning

confidence: 99%

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Environmental, social and governance performance: influence on market value in the COVID-19 crisis

Bodhanwala

2023

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PurposeThe aim of this paper is to study whether adoption of sustainability policies by firms makes their stock market performance resilient to the downside risk during the crisis period.Design/methodology/approachThe paper empirically examines the relationship between environmental, social and governance (ESG) and stock market performance for Indian companies that have consistently been a part of Refinitiv Eikon ESG database. Further, the study examines whether there exist significant differences in stock market performance of high ESG and low ESG-compliant firms during crisis period. The sample was made up of 70 Indian firms studied over the period 2016–2019 defined as “normal period” as well as for the declared COVID-19 crisis period, i.e. January–March 2020, and full year 2020. The authors used multivariate panel data regression, robust least square multivariate regression, pooled OLS model and two-stage least square regression method.FindingsThe study extends the existing literature by investigating the impact of ESG performance on market value of firms during the crisis period. Based on the stakeholder and “flight to safety” theory, the authors hypothesized that ESG would have significant positive effect on the stock market performance during crisis period; however, the results provide robust evidence that in a well-specified model capturing the effect of accounting-based measures of performance, Size, Growth, Risk and Dividend yield, ESG had no explanatory power over the stock market performance of ESG-compliant firms during crisis period. Furthermore, no significant difference in stock market performance indicators between high and low ESG-compliant firms was observed during the crisis period of 1Q2020 as well as for full year 2020. On contrary, the study finds dividend yield to be statistically significant in determining stock market performance of Indian firms during crisis period. The study extends the existing literature by coining the term, “ESG irrelevance” during crisis period.Research limitations/implicationsThe main limitation of this study is its limited sample size because there are very few Indian firms that have secured consistent ESG rating. The study focuses on consistently rated firms to avoid the impact of “greenwashing”. Further, the study is focused on India, which limits the generalizability of our findings to other emerging countries.Originality/valueTo the best of our knowledge, this is among the first few studies that examines sustainability and stock market performance of Indian firms during COVID-19-led crisis period. Our findings highlight no significant difference between stock market performance of high ESG firms and low ESG firms indicating that investors who wish to create wealth by investing in ESG-compliant stocks in India can do so without worrying about the companies’ ESG rating scores.

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Section: Linkage Between Esg and Market Performance During Normal Periodmentioning

confidence: 99%

Section: Linkage Between Esg and Market Performance During Normal Periodmentioning

confidence: 99%

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Environmental, social and governance performance: influence on market value in the COVID-19 crisis

Bodhanwala

2023

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Accounting for Negative Attention: Status and Costs in the Market for Audit Services

Ody-Brasier,

Sharkey

2024

Organization Science

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Prior work has emphasized the role of positive attention spillovers in driving cost advantages for high-status firms, with exchange partners offering preferential terms to high-status organizations because they anticipate benefits. Yet, spillovers from a client to a supplier may also be negative. These negative spillovers can be exacerbated when high-status actors are involved, because of the high level of publicity they attract. In this paper, we propose that suppliers’ concerns about negative attention are an important contingent factor determining whether high-status firms enjoy cost advantages or, instead, pay a premium. We expect that when suppliers anticipate that negative spillovers are more likely than positive ones and when they enjoy some bargaining power over their clients, a positive relationship between status and costs will result. To test this argument, we analyze fees paid by clients of varying status levels in the U.S. market for audit services. Consistent with our theory, we find that (1) high-status clients are charged more than their lower status peers and (2) the media attention clients receive does mediate this relationship. Indicative of the role of the supplier’s expectation of negative spillovers and their bargaining power, we also demonstrate that the positive relationship becomes stronger when auditors view clients as presenting a greater risk of future negative events and when clients have more bargaining power. Our efforts at theoretical integration result in a fuller picture of the role of status in shaping a firm’s costs, suggesting that status involves advantages in some settings but disadvantages in others. Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2021.15814 .

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Media Coverage of Firms in the Presence of Multiple Signals: A Configurational Approach

Bettinazzi

Jacqueminet

Neumann

et al. 2024

AMJ

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How the Pursuit of Sustainability Poses Tradeoffs Between Legitimacy and Reputational Spillovers

Cited by 3 publications

References 0 publications

Environmental, social and governance performance: influence on market value in the COVID-19 crisis

Environmental, social and governance performance: influence on market value in the COVID-19 crisis

Accounting for Negative Attention: Status and Costs in the Market for Audit Services

Media Coverage of Firms in the Presence of Multiple Signals: A Configurational Approach

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