The financial aspects of the Corporate Responsibility Index in Egypt

Abstract

Purpose – The purpose of this paper is to examine the financial aspects of high vs low-ranked firms in the Corporate Responsibility Index in Egypt, and to construct a Z-score model to discriminate between high- and low-ranked firms in the Corporate Responsibility Index. Design/methodology/approach – This study empirically examines a comprehensive list of financial ratios for 24 firms listed in EGX30 for four fiscal years, 2007-2010. The authors calculate 90 financial ratios to provide better insights and evaluation of the firms’ financial performance. The ordinary least square regression method and discriminant analysis are utilized to explain differences between the low- and high-ranked firms regarding their corporate social governance index. Findings – The results show that corporate governance and corporate social responsibility (CSR) are positively related to the firms’ financial performance in terms of sales turnover and customer loyalty. This suggests that in the long run, the market mechanism should be able to provide additional resources to those companies that are better at maximizing a widely defined bottom line of their social governance. The results also show that highly ranked firms are characterized financially by: strong bargaining power with suppliers; financing growth in fixed assets using debt mainly. Originality/value – The study contributes to the literature in terms of providing practical insights on the financial strategies that help support effective CG and CSR in Egypt. In addition, this study offers a unique quantitative attempt to measure and examine the benefits of incorporation of socioeconomics into business practices.

The financial and market consequences of environmental, social and governance ratings

“…Second, this study provides a wider view of the consequences of ESG practices. Although previous works have reported on the consequences of ESG ratings, most of them addressed the impact on financial performance (e.g., Eldomiaty et al 2016;Peiris and Evans 2010) or market performance (e.g., Subramaniam et al 2014). However, to provide a more comprehensive view of these consequences, both the financial and the market implications need to be addressed together.…”

“…In 2009, the Capital Markets Authority of Egypt created a special corporate governance department, and the Egyptian Stock Exchange began to enforce its listing rules consistently. By then, the number of listed companies fell from 1,148 in early 2002 to 333 by mid-2009 (Eldomiaty et al 2016).…”

“…Until the late 1990s and early 2000s, the Egyptian companies were not assessed in terms of CG practices (Eldomiaty et al, 2016). However, CG in Egypt has witnessed remarkable changes over the last two decades.…”

“…By then, the number of listed companies fell from 1,148 in early 2002 to 333 by mid-2009 (Eldomiaty et al, 2016).…”

“…By examining the liquidity implication of voluntary CSR reporting on the Malaysian Capital Market, Subramaniam et al (2014) showed that the greater the level of CSR disclosures, the higher the liquidity of the company, particularly in terms of the price impact. By examining Egyptian firms listed in the EGX30 for four fiscal years (2007-2010), Eldomiaty et al (2016) showed that CG and CSR are positively related to the financial performance of firms in terms of sales turnover and customer loyalty. Likewise, Arayssi et al (2016) found that ESG reporting has a positive effect on risk-adjusted and buy-and-hold abnormal returns and reduces firm risks when firms enjoy an effective and gender-diverse board structure.…”