Addressing endogeneity in the causal relationship between sustainability and financial performance

Name: Addressing endogeneity in the causal relationship between sustainability and financial performance
Author: Soytaş, Mehmet Ali, Denizel, M., Uşar, Damla Durak

İsim	Addressing endogeneity in the causal relationship between sustainability and financial performance
Yazar	Soytaş, Mehmet Ali, Denizel, M., Uşar, Damla Durak
Basım Tarihi:	2019-04
Basım Yeri	- Elsevier
Konu	Corporate sustainability, Sustainable operations, Corporate financial performance, IV technique, CSRHUB ratings
Tür	Süreli Yayın
Dil	İngilizce
Dijital	Evet
Yazma	Hayır
Kütüphane:	Özyeğin Üniversitesi
Demirbaş Numarası	0925-5273, 0925-5273
Kayıt Numarası	5111f2a1-9996-459a-b5f6-02653bb3f5c0
Lokasyon	Economics
Tarih	2019-04
Notlar	Due to copyright restrictions, the access to the full text of this article is only available via subscription.
Örnek Metin	The existing empirical literature on the relationship between corporate sustainability performance and corporate financial performance casts doubt on the direction of this relationship although more studies point out a direction from sustainability to performance. Literature also presents a gap in addressing the mechanism(s) of the relationship that hinders the convergence of the empirical findings and only recently the question of causality is being addressed with modern econometric techniques. We argue that due to the potential endogeneity problem in the relationship, an empirical strategy without a theoretical base may result in inconclusive or misleading conclusions. We address the potential endogeneity problem in the relationship and identify the possible causes of this endogeneity as: (i) firm level heterogeneity in financial returns, (ii) the relationship between firm's productivity level and the marginal cost of sustainability initiatives, and (iii) measurement error. We implement Instrumental Variable (IV) technique to overcome these biases. Our results present empirical evidence to support the hypothesis that corporate sustainability is positively related (possibly causally) with corporate financial performance. We further find that sustainability initiatives are more costly for companies that are more productive; thus, they have less incentive to invest. Finally, measurement error in the sustainability metrics does not play a crucial role.
DOI	10.1016/j.ijpe.2019.01.016
Cilt	210

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Addressing endogeneity in the causal relationship between sustainability and financial performance

Yazar Soytaş, Mehmet Ali, Denizel, M., Uşar, Damla Durak

Basım Tarihi 2019-04

Basım Yeri - Elsevier

Konu Corporate sustainability, Sustainable operations, Corporate financial performance, IV technique, CSRHUB ratings

Tür Süreli Yayın

Dil İngilizce

Dijital Evet

Yazma Hayır

Kütüphane Özyeğin Üniversitesi

Demirbaş Numarası 0925-5273, 0925-5273

Kayıt Numarası 5111f2a1-9996-459a-b5f6-02653bb3f5c0

Lokasyon Economics

Tarih 2019-04

Notlar Due to copyright restrictions, the access to the full text of this article is only available via subscription.

Örnek Metin The existing empirical literature on the relationship between corporate sustainability performance and corporate financial performance casts doubt on the direction of this relationship although more studies point out a direction from sustainability to performance. Literature also presents a gap in addressing the mechanism(s) of the relationship that hinders the convergence of the empirical findings and only recently the question of causality is being addressed with modern econometric techniques. We argue that due to the potential endogeneity problem in the relationship, an empirical strategy without a theoretical base may result in inconclusive or misleading conclusions. We address the potential endogeneity problem in the relationship and identify the possible causes of this endogeneity as: (i) firm level heterogeneity in financial returns, (ii) the relationship between firm's productivity level and the marginal cost of sustainability initiatives, and (iii) measurement error. We implement Instrumental Variable (IV) technique to overcome these biases. Our results present empirical evidence to support the hypothesis that corporate sustainability is positively related (possibly causally) with corporate financial performance. We further find that sustainability initiatives are more costly for companies that are more productive; thus, they have less incentive to invest. Finally, measurement error in the sustainability metrics does not play a crucial role.

DOI 10.1016/j.ijpe.2019.01.016

Cilt 210