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IJSER (ISSN 2229-5518) - ESG Scores and Profitability
Thesis Details
Author - Arifa Rezai and Edoardo Tortorella
Finance
Country - Sweden
Email - arifa.rezai1@gmail.com
Department - Stockholm Business School
University - Stockholm Univeristy
Guide Name - Tor Brunzell
IJSER Edition 9/28/2023
INTRODUCTION
***ESG Scores and Profitability
This study aims to increase the knowledge on the topic of ESG scores and the profitability of a
company by examining whether a positive relationship exists. More specifically, since this study
is focused on a corporate level and not on the effect on investors’ stock returns, Earnings Before
Interest and Taxes (hereafter “EBIT”) margin has been chosen as the ideal measure of
profitability. The sample is composed of 207 EU-based ETFs held by companies with ESG
investing strategies for the time period 2016-2022. To test each hypothesis question, we run
three separate fixed-effects regression models: the first one where the EBIT margin is regressed on
ESG scores and seven other explanatory variables; a second one where EBIT margin is regressed
on individual ENV-SOC-GOV Scores instead; lastly, a third one where ESG scores are regressed
on EBIT margin and other explanatory variables, to address the direction of causality issue. Our
findings provide no empirical evidence for ESG scores impacting EBIT margin, confirming
previous studies results. Although the findings do not confirm the presence of a positive
relationship between ESG scores and EBIT margin, they provide knowledge on the absence of a
tangible correlation.
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