Raymond F. Gorman

The 'Best Corporate Citizens': Are They Good for Their Shareholders?

Since 2000, Business Ethics magazine has published a list of the 100 Best Corporate Citizens. Our event study finds significant positive abnormal returns for new companies added to the annual listing on the press release date of the survey, both initially and in subsequent survey releases. Over longer holding periods, the top 100 companies consistently outperform the S&P 500, yet are not significantly different from a matched set of companies, with the exception of the initial survey year (2000). However, a rebalancing strategy based on new additions outperforms both the S&P 500 and a matched portfolio.

Capital structure and asset utilization: the case of resource intensive industries

Abstract This research studies the relationship between the capital structure of a firm and its asset utilization rate in resource intensive industries. We study this issue from both private and public policy perspectives. From a private perspective, its conceivable that a positive relationship may exist because a company is trying to increase its use of debt to effect a more efficient utilization of its assets. However, from a public policy perspective, finding a positive relationship between asset utilization and debt levels in natural resource sensitive industries may signal a sub-optimal exploitation of natural resources when debt levels rise. This research examines measures of leverage and asset utilization in firms from the mining, oil, and timber industries to determine whether the behavior alleged in the PALCO/MAXXAM case (an increased cutting rate to pay off junk bond financing) has been observed more systematically. We observe a positive relationship between leverage and asset utilization in all three industries when leverage is calculated using book value measures. When market value measures are used, this positive relationship no longer holds in the mining industry. Possible explanations for these results are offered.

Innovations in environmental performance: the importance of financial performance and management quality

Empirical analyses exploring the relationship between environmental and financial performances hypothesise that good corporate environmental performance and the associated re-evaluation of production processes and adoption of innovative solutions increase the resource productivity and/or competitive advantage, thereby creating opportunity for improved financial performance. Although recent studies provide evidence supporting this hypothesis, they do not establish that good environmental performance causes good financial performance, nor do they control for underlying firm characteristics, such as management quality, that may enhance both environmental and financial performances, thus overstating the relationship between the two. The primary objective of this study is to explore the relationship between environmental performance, risk and expected cash flows/earnings, and the resulting impact on stock returns so that managers and investors can make more informed decisions. In addition, this study examines potential factors driving corporate environmental performance. The empirical analysis suggests that to the extent that investors consider environmental performance, they perceive environmental improvements and management as costly, unless made to avoid non-compliance penalties. Furthermore, the empirical analysis indicates that corporate financial performance does not influence environmental performance. Instead, the level of corporate sophistication and trust and transparency are the driving factors behind environmental performance improvements.

Quality Management and Sustainability

In this article, an attempt is made to explain the relationship between sustainability and quality management. The authors contend that quality management is an important part of the concept of sustainability; but that sustainability is a broader concep..

Abandonment decisions and the market value of the firm: The case of nuclear power project abandonment

This article investigates empirically the behavior of stock prices around announcements of nuclear power project abandonment decisions by public utility firms. Tests were performed for both the whole sample period 1974–1982, and a sample period partitioned into before the Three Mile Island (TMI) accident 1974–1978 and after the TMI accident July, 1979–1982 periods. The empirical results for the whole sample period indicates no significant changes in the value of these firms as a result of nuclear power project abandonments. This is consistent with the argument that decreases in planned capital expenditures for public utility firms are associated with insignificant excess stock returns (McConnell and Muscarella 1985, p. 416). However, the results for the split sample periods are different. Our results for the pre-TMI period suggest that utility companies are firms which face investment projects with positive net present values. For the post-TMI accident period we find significant positive abnormal returns associated with nuclear project abandonments, i.e., decreases in capital expenditures are associated with increases in the market value of common stock.

Advancing ecology and economics through a business-science synthesis

Abstract This paper provides an overview of the concept of sustainability, presents our definition of sustainability, and contends that students need to have exposure to both business and scientific perspectives as undergraduates. We argue that the typical university class may be ineffective in conveying the scope of changes now taking place in the business world, and offer our pedagogic innovations as an alternative to the status quo. The result is a capstone course in sustainability team taught by one professor from the School of Business and one from the College of Arts and Science. The intended audience for the course is undergraduate students majoring in business or science. The content draws heavily on the many parallels between ecology and economics, including systems and resilience, ethics and valuation issues, and information and dialogue as central to the process of sustainability.

Regional ecosystem services and the rating of investment opportunities

Environmental scientists and financial experts have recently been asking whether the damage costs imposed on the environment by industrial resource uses (often referred to as externalities) can be reflected in financial markets. We examine this question by summarizing work on mechanisms for including the damage to (or recovery of) ecosystem services directly in the price of a companys stocks and bonds and call this concept “environmental value creation through investment” (EVCI). Ten functions and 36 ecosystem services are presented that can benefit from good corporate environmental performance. Rating publicly traded companies requires collaboration between ecosystem scientists and business analysts. Metrics are being developed for reporting the impact of business practices on the value of ecosystem services within regions across the US.

If Built to Last, Are They Built for Value?

In 1994, James Collins and Jerry Porras extolled the virtues of a selected group of visionary companies in Built to Last. Whether these visionary companies are good of investments is not clear. Collins and Porras find that their visionary firms outperform a “less visionary” comparison group and the market index through 1990. We can confirm Collins and Porrass results on a raw and risk-adjusted basis for the years prior to the completion of their work, but the relationship weakens for the years following. And using market capitalization and SIC code benchmarks, we find little support for the superiority of these companies prior to or after the Collins-Porras study.

Barron's Most Respected Companies

In this study, we investigate the performance of firms selected to Barron’s Most Respected Companies against the S&P 500 and a matched sample over a short‐term, long‐term and operational basis. The most respected companies exhibit a statistically significant announcement effect associated with their selection and outperform the S&P 500 over longer‐holding periods. The overall sample and those firms identified as top picks outperform a matched sample of firms. In addition, as measured by changes in the return on assets, the post‐selection operational performance of the most respected firms was better than that of the matched firms.

An examination of regulatory regime and public utility underwriting costs from an agency perspective

Abstract We examine from an agency-theoretic perspective the flotation costs incurred by public utilities, contending that the conflicts of interests among managers, owners, utility commissions, and consumers would be manifested in a negative relationship between the regulatory climate and flotation costs. Several hypotheses are tested using a sample of 538 seasoned equity issues of public utilities during the period 1973 through 1980. Contrary to our expectations, however, we find that the stringency (strictness) of regulatory climate is positively related to flotation costs. We offer some plausible explanations for the counter-intuitive results.