Does the market reward for going green?

Abstract

Purpose

The purpose of this paper is to investigate the effects of the application of green standards on the companies’ financial returns. It aims at answering the following question: does the market reward or penalize the players that carry out responsible management policies toward environment?

Design/methodology/approach

Using US data from 2009 to mid-2014 and employing two financial models, that is Capital Asset Pricing Model and Fama-French three-factor model, the authors first estimate the extra remuneration provided to investors. Then, the authors link this extra return to a green-based factor. The green-factor data are taken from Newsweek Green Rankings, which annually publishes an environmental ranking of the 500 biggest publicly traded companies in the USA.

Findings

The analysis demonstrates that there exists no linear relationship between the adoption of green standards and financial returns, i.e. the “green-behavior” does not affect the remuneration required by investors. These results could be justified by the fact that the implementation of environmentally friendly standards is quite a new one.

Research limitations/implications

The results could be subject to major changes in next few years, due to the increasing attention over environmental issues.

Originality/value

The paper investigates the financial profitability and the creation of economic value of a topical managerial issue, in light of the increasing importance of social responsible behavior for the companies. To the authors knowledge, this is the first paper that examines this topic.

Citation

Puopolo, G.W., Teti, E. and Milani, V. (2015), "Does the market reward for going green?", Journal of Management Development, Vol. 34 No. 6, pp. 729-742. https://doi.org/10.1108/JMD-03-2014-0027