CRITERIOS DE SOSTENIBILIDAD EN EL DISEÑO DE ZONAS VERDES

Regression and correlation analysis is the third approach used to test the relationship between CSR and CFP. However, results from such studies are mixed, and thus findings on the relationship between CSR and CFP remain inconsistent and inconclusive. As noted by Oppenheim (1970), the multiple regression study can provide total variance from multivariate procedures, as well as identifying how individual variables can explain this variance. However, two limitations also highlighted are that the model requires a large number of observations, and also that a theory is needed to link the variables together in order to prevent the disaggregation of the explained variance.

Spicer (1978) selects 24 companies in the pulp and paper industry for the period 1968- 1973. However, the author omits six of these companies for the fact that four of the firms miss the 25-percent sales requirement (meaning that 25 percent of sales must originate from the paper industry for each company) and that no Compustat financial data is available for another two. The author reports companies with better pollution control as having higher profitability, larger asset bases, lower overall risk, lower systematic risk and higher price/earning ratios than companies with poorer pollution control. However, these significant associations are found to reduce over a period of time, and can therefore only explain the phenomenon in the short term.

Chen and Metcalf (1980) dispute Spicer’s (1978) empirical results based on the same group of data, indicating that the significant correlation between pollution control records and financial indicators is spurious. They analyse the possible causal relationship among the dependent variable, the independent variable, and the control variable. The relationship between dependent and independent variables is not direct, as the control variable will have either a direct or indirect affect on this relationship. The study concludes that the significant correlation between pollution control records and financial indicators cannot be justified due to the use of size as a control variable.

Mahapatra (1984) also points to the lack of evidence showing that pollution control initiatives can lead to improved stock performance. The author classifies investors into

the two groups of “ethical” and “rational economic” investors based on how the investors respond to long-term pollution control expenditure, and the study formulates its hypotheses according to ethical investor theory. In the study, a sample of 67 firms is taken from six industries, which account for nearly 75 percent of the pollution control expenditure for all industries for the period 1967-1978 (Rutledge, 1979). Pollution control expenditure in the six industries is then compared with average market return, and a negative relationship is found to exist between environmental and market performance. These results go against ethical investor theory and are thus consistent with the rational economic investor.

In summary, the results from these earlier studies into the relationship between CSR and CFP are largely inconclusive, as both significantly positive and negative relationships are found to exist. This highlights the need to consider more recent studies, for which improved data and methodology help mitigate the weaknesses of earlier research.

Hart and Ahuja (1996) analyse the relationship between emissions reductions and CFP for a sample of S&P 500 firms. Two criteria are used for the selection process, namely: a) that the firms should belong to manufacturing, mining or other production industries and, b) that each industry is represented by at least four firms. For the multiple regression analysis, the change in the ratio of TRI-reported emissions in GBP to the company’s revenues in thousands of USD for the period 1988-1989 is used as the emissions reduction, while control variables are used as independent variables. The return on assets (ROA), return on sales (ROS) and return on equity (ROE) are used as dependent variables, while the control variables used are advertising intensity, R&D intensity, capital intensity and leverage. These financial performances are shown to improve two years after the firms’ reductions in emissions. Moreover, the financial performance for firms having had higher emission levels prior to reducing emissions is seen to improve more than for other companies. Overall, the relationship between emission reduction and firm performance is found to be positive with a time lag of 1-2 years, with ROS and ROA being affected by emission reductions sooner than ROE. The study uses averages of emission reductions per unit of revenue for each industry to identify “high” and “low”

polluting firms. No significant effect on financial performance is found for low-polluting firms, whereas positive significant effects are found for high-polluting firms.

Cordeiro and Sarkis (1997) test the relationship between environmental proactivism and firm performance by using 523 firms that report their toxic releases in line with the 1990

US Pollution Prevention Act. In contrast to other papers, the authors use one-year

earnings-per-share and five-year earnings-per-share growth forecasts as measures of CFP. Both the firms’ sales and debt-to-equity ratios are used in order to control for the effects of firm size and leverage on performance forecasts, while industry-adjusted values are used in order to reduce industry effect. (However, the authors subsequently find that it makes little difference as to whether industry-adjusted values or non-industry-adjusted values are used.) For the multiple regression analysis, analysts’ performance forecasts for 1993 are used as the dependent variable; while the performance of the firms’ environmental proactivism in 1992 or the change in environmental proactivism from 1991-1992 are used as the independent variables. Both firm size and leverage are also used as independent variables in both regressions. The study identifies significantly negative relationships between the performance of proactivism in 1992, the change in proactivism from 1991-1992, and also the one-year earnings-per-share forecast and five- year earnings-per-share growth forecast at the significant levels of 0.1 and 0.05. When applying non-industry-adjusted values, the change in proactivism is not found to be significant, as other studies reach the same results when applying industry-adjusted values. The study ends by concluding that environmentally proactive firms have lower earnings-per-share in the short term (since the study only covers a short time period).

McWilliams and Siegel (2000) use regression analysis to test the relationship between CSR and CFP. The authors note that regression functions lacking the R&D and advertising expenditure variables will necessarily be misspecified10. Due to the fact that CFP can be affected by both of these variables, the authors find CSR as having an insignificant effect on CFP when the regression model is used with the R&D and

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advertising expenditure variables. Therefore, the model without both variables is misspecified.

Hillman and Keim (2001) follow Baron (2001) by disaggregating CSR into stakeholder management (strategic CSR) and social issue participation (altruistic CSR), before then testing the relationship between CFP and these two CSR elements. The relationship between CFP and strategic CSR is found to be positive, while the relationship between CFP and altruistic CSR is found to be negative.

Thomas (2001) tests the relationship between excess stock market returns and corporate environmental policy. The data used in this study comes from a Croydon Borough Council (UK) survey of 297 pension schemes (that garnered 131 responses). The survey asks three main questions, namely: whether the firms have an environmental policy; whether the firms have ever been prosecuted by a UK environmental agency; and whether the firms provide environmental policy training to their staff. Thomas (2001) uses a multiple regression framework to test the relationship between the monthly excess stock return and monthly excess return for the market index, with size factor given as an additional explanatory variable. Dummy variables based on survey questions are used in this regression, with the value of the dummy variable equalling “one” if the company has an environmental policy, has been prosecuted by an environmental agency or provides environmental policy training to its staff. The results show that, for firms with an environmental policy, the excess return for firms in high-polluting industries increases over the period 1995-1997 and moves from negative to positive over the three sub- periods. For companies that have been prosecuted by an environmental agency, there is a significant positive effect for the excess return in the first sub-period (1985-1991), which is then reversed for the third sub-period (starting 1995). Meanwhile, the author fails to identify any significant explanatory power for the excess return when environmental policy staff training is used as a dummy variable.

Surroca et al (2010) reject claims of a direct relationship between social and financial performance (suggesting that the evidence of a direct relationship presented in previous

studies is flawed due to the fact that researchers do not consider intangible resources). In this context, the authors apply intangible resources to their regression and find an indirect relationship between social and financial performance, which is dependent on the effect of the intangible resources.

Several firm-based studies estimate the relationship between CSR and the cost of equity capital. Sharfman and Fernando (2008) use 267 US firms to test the relationship between environmental risk management and the cost of capital. The authors note that good environmental risk management appears to result in a lower weighted average cost of capital—and more specifically that good environmental risk management leads to a higher cost of debt capital—while higher levels of environmental risk management reduces the cost of equity capital for firms. Using the CAPM theory, the authors find that higher levels of environmental risk management lead to lower systemic risk betas, as well as less volatile performance. Thus, the authors conclude that improved environmental risk management leads to improved economic performance (such as the decreased cost of equity capital or transfers from equity to debt financing).

Having selected firms with individual CSR reports and CSR ratings from the KLD database, Dhaliwal et al (2010) consider how a firm’s initiative in disclosing CSR activities voluntarily affect the cost of a firm’s equity capital. The authors record higher costs of equity capital in the year prior to the CSR disclosure, and then a lower cost of equity capital after the firms have disclosed their CSR activities. As well, after disclosure, institutional investors and analyst coverage are found to prefer firms that display good social performance (there are some minor errors in the analyst forecasts).

El Ghoul et al (2011) use 12,915 US firms from the period 1992-2007 to consider the effect of CSR on the cost of capital. The authors apply four different valuation models to compute the implied cost of equity capital—namely the Claus and Thomas (2001) model, Gebhardt et al (2001) model, Ohlson and Juettner-Nauroth (2005) model and Easton (2004) model11. All of these models are based on current share prices and analyst

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forecasts. The CSR data used in the study is taken from the KLD database, and regressions are run between CSR and the implied cost of equity capital by controlling firm-specific control variables, industry and year-fixed. The authors report higher levels of CSR as resulting in significantly lower implied costs of equity capital. However, not all KLD indicators are found to affect the implied cost of equity capital. For example, firms displaying good performance for employee relations, environment and product indicators are found to have lower implied costs of equity capital; while good performance for community, diversity and human rights does not appear to affect the implied cost of equity capital. Firms in both the tobacco and nuclear power industries have higher implied costs of capital. However, the authors conclude that, in general, stronger CSR performance contributes to higher valuations and lower risk.