Abstract
This study investigates the impact of sustainable practices on firm performance. Specifically, the effect of the firm's sustainable practices on value will be investigated by examining 1,430 Chinese firms listed on the Shanghai and Shenzhen stock exchanges for a sample period from 2006 to 2022. This study employs the Ohlson residual model and uses robustness tests to investigate if a company's adoption of sustainable practices is an asset or a liability. Our findings indicate that the simple adoption of environmental reporting or the adoption of part of environmental policies is a liability. On the contrary, the combination of the presence of institutional investors and the adoption of all UN policies increases the firm's value. This study provides the first evidence that combining sustainability policies, widely called the holistic, sustainable approach, increases the firm's value. This study confirms and extends Ferrell et al. (2016) findings and is a valuable finding for policymakers, analysts, and regulators.This paper also examines the impact of the ESG score on risk-adjusted CAPM, and factor models are applied to investigate the relationship between the ESG score and risk-adjusted return. The empirical findings indicate that ESG scores affected portfolio risk-adjusted return significantly. Low ESG score portfolios generate higher average monthly returns than high ESG portfolios. Our findings are confirmed by second-stage regression analysis, providing robust evidence and suggesting that ethical ESG factors are a new risk component on top of size, value, and market factors that affect the risk-adjusted return. Overall, our results are helpful for investors and fund managers as they assess the performance of their portfolios and the pricing of their assets.
This study further investigates the relationship between firm sustainability practices and its specific risk. The results highlight the profound impact of a company's sustainability practices on its risk profile. Overall, sustainable practice reduces total risk as a proxy by volatility 360 days and credit risk as a proxy by Altman Z scores, supporting the risk management effect of sustainable practices. In contrast, sustainable practice does not significantly impact systematic risk as a proxy for beta. Overall, these findings are useful for stakeholders, including investors and fund managers, to assess the performance of their portfolios and the pricing of the assets, companies to make sustainability investment decisions and the extent of the investment, policy decisions, etc.
Keywords: Valuation, Sustainability, Residual Income model, UNSDGS, ESG, Policy
| Date of Award | 10 Jul 2025 |
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| Original language | English |
| Awarding Institution |
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| Supervisor | Konstantinos Vergos (Supervisor) & Khaled Hussainey (Supervisor) |