Alexander Bassen

ESG and Financial Performance: Aggregated Evidence from More than 2000 Empirical Studies

The search for a relation between environmental, social, and governance (ESG) criteria and corporate financial performance (CFP) can be traced back to the beginning of the 1970s. Scholars and investors have published more than 2000 empirical studies and several review studies on this relation since then. The largest previous review study analyzes just a fraction of existing primary studies, making findings difficult to generalize. Thus, knowledge on the financial effects of ESG criteria remains fragmented. To overcome this shortcoming, this study extracts all provided primary and secondary data of previous academic review studies. Through doing this, the study combines the findings of about 2200 individual studies. Hence, this study is by far the most exhaustive overview of academic research on this topic and allows for generalizable statements. The results show that the business case for ESG investing is empirically very well founded. Roughly 90% of studies find a nonnegative ESG–CFP relation. More importantly, the large majority of studies reports positive findings. We highlight that the positive ESG impact on CFP appears stable over time. Promising results are obtained when differentiating for portfolio and nonportfolio studies, regions, and young asset classes for ESG investing such as emerging markets, corporate bonds, and green real estate.

The Influence of Corporate Responsibility on the Cost of Capital

Corporate responsibility (CR) issues have gained importance within the financial community due to the exponential growth of specialized institutes, expansion of academic and research departments, increased launching of mutual funds allocated according to sustainability criteria, proliferation of online resources and other publications, and specialized corporate responsibility reports. A closer look at the literature concerning the relationship between CR issues and financial measures indicated three major fields for improvement in this area: (1) the development of a common understanding of CR issues; (2) the measurement of CR performance; and (3) the question of how CR issues affect the risk profile of a company. We hypothesized that there is a relationship between CR and financial performance (H1) and that good CR performance reduces the risk to a company (H2). A clear relationship between CR and financial performance was not found, but CR and financial performance were indirectly linked throughout company risk. This research delivers evidence that CR performance is strongly linked to financial risk measures. There is also support for the assumption that CR issues are likely to be regulation-driven. Regulation seems to be a driver for CR engagement in the utility industry. It seems that a complete lack of CR engagement exposes a company to unnecessary high risk.

Integrating Sustainability Reports into Financial Statements: An Experimental Study

In recent years, sustainability has increasingly attracted the attention of capital market participants. While event studies have established that stock prices react to news about environmental, social, and governance (ESG) performance, further empirical evidence raises the question of whether market participants always rationally process ESG information included in a standalone sustainability report. In an experiment with investment professionals, this study investigates whether a disconnect between financial statements and sustainability reports leads to an anchoring effect in the assessment of ESG information. Results show that users of standalone sustainability reports fully adjust their valuations to the level of integrated (financial and sustainability) report users following information about bad ESG performance. However, none of the standalone reports users adjust their valuations following information about good ESG performance. Thus, financial statement users asymmetrically anchor on their financial value judgments when assessing ESG information provided in a standalone report.

An Integrative Framework for Reporting in Social Entrepreneurship

In order to implement and scale their ideas to solve social problems, social entrepreneurs need financial as well as non-financial support from external investors. At the same time, there is no common reporting standard instructing social entrepreneurs how to measure and report their performance, risks and organizational capacity in order to better attract these necessary resources. One of the major consequences of this situation is a very high cost of capital for investors in this field and thus an extremely inefficient capital allocation. This paper develops an integrative framework for reporting in social entrepreneurship by drawing on an integrated management model in order to sort, structure and systemize indicators for assessing social ventures.

Influences for using sustainability information in the investment decision-making of non-professional investors

ABSTRACT Non-professional investors face a series of complex decisions when considering environmental, social and governance (ESG) issues for their investment activities. As such, this study sheds light on the question: what influences the use of sustainable information and the decision to invest in a sustainable company by non-professional investors? In order to answer the question, this article builds on the behavioral finance and information overload literature. We used an online survey carried out in Germany and applied a structural equation model. The results show that the personal orientation toward sustainability issues is the most important factor in deciding to use a company’s sustainability information. Furthermore, the study reveals that the decision to invest in a sustainable company is influenced by the personal sustainability orientation, identification induced by a good feeling, their willingness to waive returns for sustainability, their exposure to sustainability information, the investor’s age and information overload. The results show that non-professional investors do not distinguish between the different aspects of sustainability, that is, ESG. The study contributes to research which explores decision-making of non-professional investors, specifically their perception of sustainability information. It identifies factors influencing the use of sustainability information and the decision to invest in sustainable companies.

M&A success of German acquisitions in the US-evidence from capital market and survey data

This article examines the value creation of 78 German acquisitions in the US during the period 1990 to 2004. The observed Cumulative Abnormal Returns (CARs) confirm the previous finding that cross-border Mergers and Acquisitions (M&A) activity yields on average wealth gains for shareholders of the acquiring companies. No evidence of a negative cross-border wealth effect could be ascertained, thereby indicating a high international integration of the German capital market. The positive capital market perception of German M&A activities in the US is mainly driven by the acquisition of private targets and equity-settled transactions. The market reactions yield overall congruent results to the responses from surveyed executives of German acquirers. However, bidders’ self assessment of US acquisitions is more positive than the capital market valuation, which substantiates manager overconfidence.

Implementation of Article 41 of the 8th EU Directive in the EU member states – impact on internal governance mechanisms

In reaction to accounting scandals, national and international standard-setters have introduced and enforced additional corporate governance mechanisms in recent years. These regulatory changes have had an especially large effect on external governance mechanisms like disclosure requirements, the accountability of management and board members and statutory audits. For the first time, in Article 41 of the 8th EU Directive, European legislation addressed the relationship between audit committees (which are now mandatory for public-interest entities) and other internal governance mechanisms such as internal controls, the internal audit function, and the risk management system. This study investigates the current level of implementation of the items addressed in the 8th EU Directive within the EU member states. Implementation varies considerably from one jurisdiction to another, and there is no consensus regarding the internal audit function and other internal governance mechanisms within Europe.

Timing effects of corporate social responsibility disclosure: an experimental study with investment professionals

ABSTRACT Companies disclose increasingly more corporate social responsibility (CSR) related information. However, CSR information is not always treated entirely rationally by capital market participants. In an experiment using experienced investment professionals, we investigate how the timing of CSR disclosure influences firm valuations by professional investors. The results suggest that CSR disclosure in a stand-alone report, temporally disconnected to firm’s financial disclosure, may lead to asymmetric anchoring, whereby simultaneous disclosure of CSR and financial information in an integrated report prevents anchoring in investors’ judgement. Investors’ asymmetric anchoring is induced by differences in cognitive effort invested in CSR information processing, which depends on whether CSR information signals future profits or losses. Our results contribute to the debate on disclosure standards for CSR information and the use of CSR information by professional investors.

Gestaltung von Stock-Option-Programmen beim IPO

Seit einigen Jahren wird von Aktionaren verstarkt der Einsatz von Entlohnungssystemen gefordert, die eine Orientierung an der Wertsteigerung implizieren.1 In dieser Diskussion wird Stock-Option-Programmen ein besonderer Wertbeitrag attestiert.

Towards a sustainability reporting guideline in higher education

Purpose So far, sustainability reporting in higher education is in a very early stage – partly, because of the lack of an established and widely recognized sustainability reporting framework for higher education institutions (HEIs). Therefore, a modification of the sustainability code for the use in the higher education context was recently developed in Germany. The purpose of this paper is to evaluate this modification from an academic point of view. Design/methodology/approach The evaluation of the sustainability code is based on selected reporting principles drawn from frameworks of sustainability and financial reporting. Findings The evaluation shows that to a large extent, the modification of the sustainability code for HEIs contributes to the fulfillment of the selected reporting principles. However, it also became evident that there is still room for improvement, especially in terms of clarity and the inclusion of material aspects. Practical implications The need for an implementation manual regarding the modified HEI-specific sustainability code is emphasized, as the sustainability code requires further clarification to be manageable for HEIs. Originality/value This paper provides suggestions for the further development of a sustainability reporting guideline for HEIs to enhance its alignment with both sustainability reporting principles and the needs of HEIs.