World Capital Market's Perception

J Bus Ethics (2014) 122:475500
DOI 10.1007/s10551-013-1760-9
The World Capital Markets Perception of Sustainability

and the Impact of the Financial Crisis
Kerstin Lopatta Thomas Kaspereit
Received: 21 June 2012 / Accepted: 10 May 2013 / Published online: 13 June 2013
Springer Science+Business Media Dordrecht 2013
Abstract Using a unique dataset provided by the international rating agency GES, we investigate the effects of
corporate sustainability and industry-related exposure to
environmental and social risks on the market value of
MSCI World firms. The results show a negative relationship in the earlier years of our sample period. However, the
analysis reveals that the capital market perception of sustainability has changed owing to the financial crisis.
Looking at the height of the crisis in September 2008, the
month in which Lehman Brothers shocked the worlds
capital markets by filing for Chapter 11 bankruptcy protection, we find that the previously negative perception of
corporate sustainability across its various dimensions was
positively affected and offset. In addition, as a moderated
regression analysis shows, the crisis led to a positive perception of corporate sustainability in industries that are
exposed to higher environmental and social risks. Our
study has the practical implication that executives, in particular in industries with high environmental and social
risks, should increase their commitment to corporate sustainability due to the changes in the institutional setting
triggered by the financial crisis.
Keywords Corporate sustainability Environmental risks
Financial crisis Global Engagement Services (GES)
Instrument variable regression Moderated regression
analysis Social risks
K. Lopatta T. Kaspereit (&)

Accounting and Corporate Governance, University of
Oldenburg, Ammerlander Heerstr. 114118,
26111 Oldenburg, Germany
e-mail: thomas.kaspereit@uni-oldenburg.de
K. Lopatta
e-mail: kerstin.lopatta@uni-oldenburg.de
Introduction
The current financial crisis not only shocked the capital
markets but also led to a change in the societys perception of
profit maximization and its inherent risks. In October 2011,
members of the Occupy Wall Street movement claimed that
they had greater fear of the public risks of global climate
change and social inequality than of their personal risk of
being arrested and charged. The protesters directly connected
these risks to the greed of firms and capital markets, an attitude
that was shared even by a broad spectrum of political organizations (Wall Street Journal, 17 October, 2011). Thus, the
financial crisis seems to have strengthened public concerns
about the traditional neo-liberal shareholder value paradigm
that currently rules the major capital markets and which
dominated the corporate world before the concept of sustainability appeared on the stage in the late 1990s. Under these
circumstances, it is worth questioning how the worlds capital
markets perceive commitment to corporate sustainability and
what impact the financial crisis had on this perception.
This paper contributes to at least two strands of the literature. First, we expand the empirical literature on the connection between corporate sustainability, sustainability at
the industry level and shareholder value creation. Our study
is the first to use a large sample of MSCI World firms with
sustainability ratings by Global Engagement Services
(GES), an established international rating agency specializing in socially responsible investments. Other studies on
the value relevance of corporate sustainability focus on local
markets (e.g. Hassel et al. 2005; Semenova and Hassel 2008;
Semenova et al. 2009; Guenster et al. 2011), whereas this
study addresses all of the worlds developed stock markets.
In addition, the sample has a panel data structure, which
covers the period December 2003June 2011, which allows
us to control for individual heterogeneity. Applying a
123
476
generalized method of moments (GMM) approach and using

instrumental variables partially mitigate the endogeneity
problem. Thus, we provide reliable results that help to
understand the drivers of corporate sustainable development
and answer the question whether implementing sustainability into corporate strategies is compatible with a broader
concept of shareholder value orientation.
Second, we contribute to the sparse theoretical and
empirical literature on the momentum change in the capital
markets perception of corporate sustainability that was
induced by the global financial crisis starting in 2007.
There is empirical evidence that during economic crises,
firms are forced to engage in cost-cutting activities and
consequently cut their spending on sustainability projects
(Karaibrahimoglu 2010). This tendency may be aggravated
by consumers focus on the cheapest price rather than
quality or additional product features such as ethical production (Manubens, 2009). However, the crisis and the
concept of sustainability call for similar needs, for instance,
innovation to ensure long-term entrepreneurial survival, an
internal organizational culture and employee motivation,
all of which help firms to navigate rough economic waters
(Fernandez-Feijoo Souto 2009). From this perspective,
corporate sustainability can serve as an effective tool to
manage economic crises and make firms less vulnerable to
their vicious effects. Furthermore, we argue that maintaining or even improving the level of corporate sustainability is a signal to the capital markets that a firm still has
enough financial strength to pursue a long-term business
strategy and is not forced to restrict its resources to vitally
important short-run functions. Our empirical findings support this argument since they detect a positive momentum
shift in perception of corporate sustainability during the
financial crisis, in particular for firms that operate in
industries with high environmental and social risks.
The paper is structured as follows. In the next section, we
develop our research hypotheses, which are based on the
theoretical literature describing the potential relationship
between corporate sustainability, shareholder value and the
financial crisis. Section Results of Prior Empirical
Research reviews the existing empirical evidence, before
the Data and Methodology section introduces the data and
methodology of our analysis. The results are presented in the
Results section. Section Conclusion summarizes our
findings and provides an outlook on further research.
Theoretical Background and Hypotheses Development

Corporate Sustainability and Firm Value
The business ethics literature so far has provided several
approaches towards deriving a theoretical foundation for a
123
K. Lopatta, T. Kaspereit
link between corporate sustainability and the market value

of a firm. These approaches can be assigned to three major
theories, namely, the resource-based view, legitimacy
theory and stakeholder theory.
The resource-based view sees expenditures for environmentally friendly and socially desirable business practices as investments that lead to a better reputation and in
turn to higher long-run profits. In this theoretical framework, corporate sustainability contributes to the creation of
the essential resource reputation and can be regarded as a
management practice or even a total quality management
system that reduces manufacturing costs, produces competitive advantages by enhancing production efficiency,
and lowers compliance and liability costs (Klassen and
McLaughlin 1993; Hart 1995; McWilliams and Siegel
2011; Hart and Dowell 2011). Whilst on the cost side,
corporate sustainability has the potential to reduce expenditures resulting from material waste, recruitment and
inefficient processes (Klassen and McLaughlin 1996; Lo
and Sheu 2007), there is empirical evidence that certain
customer groups tend to favour green products from firms
that respect environmental and social standards (Tanner
and Wolfing Kast 2003; Gilg et al. 2005; Trudel and Cotte
2009). Nonetheless, most recent research finds that consumers perception of sustainability differs depending on
product attributes. The positive effect of product sustainability on consumer preferences is reduced when strengthrelated attributes are valued, sometimes even resulting in
preferences for less sustainable product alternatives (Luchs
et al. 2010). Thus, the net effect of sustainability is case
sensitive and no general prediction is possible.
From a legitimacy theory perspective, corporate sustainability can be seen as a management practice that
ensures going concern by preserving a firms organizational legitimacy. It delays the expected end of the time
series of future cash flows to infinity and in this way
increases firm value. Suchman (1995) defines legitimacy as
a generalized perception or assumption that the actions of
an entity are desirable, proper, or appropriate within some
socially constructed system of norms, values, beliefs, and
definitions. If the behaviour of a firm is at odds with these
norms, values, beliefs and definitions, there is a danger that
customers or suppliers will refuse to do business with that
firm. Then, the firm lacks legitimacy, which implies a
decline in profit or even corporate failure (Hybels 1995).
One example of the economic consequences of violating
customers norms was the Shell boycott after the company
announced plans to dump its oil storage buoy Brent Spar in
the Atlantic Ocean in 1995. Even though none of its customers were directly affected in the economic sense, many
refused to buy gasoline from Shell gas stations, which
caused revenues and the share price to decline considerably
(Sandhu 2010). There are similar case studies for firms that
476
generalized method of moments (GMM) approach and using

instrumental variables partially mitigate the endogeneity
problem. Thus, we provide reliable results that help to
understand the drivers of corporate sustainable development
and answer the question whether implementing sustainability into corporate strategies is compatible with a broader
concept of shareholder value orientation.
Second, we contribute to the sparse theoretical and
empirical literature on the momentum change in the capital
markets perception of corporate sustainability that was
induced by the global financial crisis starting in 2007.
There is empirical evidence that during economic crises,
firms are forced to engage in cost-cutting activities and
consequently cut their spending on sustainability projects
(Karaibrahimoglu 2010). This tendency may be aggravated
by consumers focus on the cheapest price rather than
quality or additional product features such as ethical production (Manubens, 2009). However, the crisis and the
concept of sustainability call for similar needs, for instance,
innovation to ensure long-term entrepreneurial survival, an
internal organizational culture and employee motivation,
all of which help firms to navigate rough economic waters
(Fernandez-Feijoo Souto 2009). From this perspective,
corporate sustainability can serve as an effective tool to
manage economic crises and make firms less vulnerable to
their vicious effects. Furthermore, we argue that maintaining or even improving the level of corporate sustainability is a signal to the capital markets that a firm still has
enough financial strength to pursue a long-term business
strategy and is not forced to restrict its resources to vitally
important short-run functions. Our empirical findings support this argument since they detect a positive momentum
shift in perception of corporate sustainability during the
financial crisis, in particular for firms that operate in
industries with high environmental and social risks.
The paper is structured as follows. In the next section, we
develop our research hypotheses, which are based on the
theoretical literature describing the potential relationship
between corporate sustainability, shareholder value and the
financial crisis. Section Results of Prior Empirical
Research reviews the existing empirical evidence, before
the Data and Methodology section introduces the data and
methodology of our analysis. The results are presented in the
Results section. Section Conclusion summarizes our
findings and provides an outlook on further research.
Theoretical Background and Hypotheses Development

Corporate Sustainability and Firm Value
The business ethics literature so far has provided several
approaches towards deriving a theoretical foundation for a
123
link between corporate sustainability and the market value

of a firm. These approaches can be assigned to three major
theories, namely, the resource-based view, legitimacy
theory and stakeholder theory.
The resource-based view sees expenditures for environmentally friendly and socially desirable business practices as investments that lead to a better reputation and in
turn to higher long-run profits. In this theoretical framework, corporate sustainability contributes to the creation of
the essential resource reputation and can be regarded as a
management practice or even a total quality management
system that reduces manufacturing costs, produces competitive advantages by enhancing production efficiency,
and lowers compliance and liability costs (Klassen and
McLaughlin 1993; Hart 1995; McWilliams and Siegel
2011; Hart and Dowell 2011). Whilst on the cost side,
corporate sustainability has the potential to reduce expenditures resulting from material waste, recruitment and
inefficient processes (Klassen and McLaughlin 1996; Lo
and Sheu 2007), there is empirical evidence that certain
customer groups tend to favour green products from firms
that respect environmental and social standards (Tanner
and Wolfing Kast 2003; Gilg et al. 2005; Trudel and Cotte
2009). Nonetheless, most recent research finds that consumers perception of sustainability differs depending on
product attributes. The positive effect of product sustainability on consumer preferences is reduced when strengthrelated attributes are valued, sometimes even resulting in
preferences for less sustainable product alternatives (Luchs
et al. 2010). Thus, the net effect of sustainability is case
sensitive and no general prediction is possible.
From a legitimacy theory perspective, corporate sustainability can be seen as a management practice that
ensures going concern by preserving a firms organizational legitimacy. It delays the expected end of the time
series of future cash flows to infinity and in this way
increases firm value. Suchman (1995) defines legitimacy as
a generalized perception or assumption that the actions of
an entity are desirable, proper, or appropriate within some
socially constructed system of norms, values, beliefs, and
definitions. If the behaviour of a firm is at odds with these
norms, values, beliefs and definitions, there is a danger that
customers or suppliers will refuse to do business with that
firm. Then, the firm lacks legitimacy, which implies a
decline in profit or even corporate failure (Hybels 1995).
One example of the economic consequences of violating
customers norms was the Shell boycott after the company
announced plans to dump its oil storage buoy Brent Spar in
the Atlantic Ocean in 1995. Even though none of its customers were directly affected in the economic sense, many
refused to buy gasoline from Shell gas stations, which
caused revenues and the share price to decline considerably
(Sandhu 2010). There are similar case studies for firms that
The World Capital Markets Perception
employ workers in developing countries under questionable conditions, e.g. Coca-Cola and Nike (Baron 2001;
Martin 2002; Lawrence 2010).
Stakeholder theory and related empirical work suggest
that firms that follow the principles of sustainability have
lower cost of capital due to lower stakeholder risks and a
broader investor base (Heinkel et al. 2001; Sharfman and
Fernando 2008; Bartkoski et al. 2010; Dhaliwal et al.
2011; El Ghoul et al. 2011; Goss and Roberts 2011).
Godfrey (2005) developed a comprehensive framework
describing how corporate sustainability in the form of
philanthropy can create shareholder value by generating
positive moral capital amongst communities and stakeholders. This moral capital can serve as insurance-like
protection for a firms relationship-based intangible assets
and in turn may reduce its exposure to stakeholder risks. A
reduction in risk implies lower cost of capital and, all other
factors being equal, higher firm value.
However, besides the benefits of corporate sustainability
described by these theories, when assessing the overall
effects of corporate sustainability on firm value, the
potential benefits have to be balanced against the costs,
which can be broken down into additional capital cost,
material and services, and labour (McWilliams and Siegel
2001). For instance, modern plants, equipment and end-ofpipe facilities have to be financed, purchased and amortized. To enhance the ecological efficiency of the production process, additional research and development have to
be undertaken and money spent on in-house or external
training. Although widely ignored in the literature, the
costs that are most capable of substantially reducing future
cash flows are the opportunity costs that arise due to sustainability-induced constraints on management decisions.
Firms that strive to maintain a sustainable image have to
abandon profitable but unethical business strategies such as
wage dumping, child labour and the use of environmentally
hazardous production materials. Since it remains an
empirical question whether the cost of sustainability
exceeds the benefit or vice versa, our first hypothesis is two
sided.
Hypothesis 1 The level of corporate sustainability affects
the market value of a firm.
If there is no evidence for Hypothesis 1, this can be
explained by microeconomic considerations. In Lundgrens
(2011) model, firms invest in corporate sustainability until
their related marginal benefits equal the marginal costs.
Different observed levels of corporate sustainability are the
result of different benefit and cost structures rather than of
the varying abilities of management to follow the generally
value-enhancing business strategy of corporate sustainability. As a consequence, the chosen level of corporate
sustainability is always individually optimal and not
477
relevant to cross-sectional and intertemporal variance in

firm valuation. Recent empirical findings by Chiu and
Sharfman (2011) support this strategic instrumentalization
of corporate sustainability.
Industry Sustainability and Firm Value
The theoretical analysis of the impact of industry environmental and social risks on firm value differs from the
corporate level in that industry sustainability is not at the
discretion of management. These risks can change over
time and are driven by macroeconomic factors and trends.
Assuming risk-averse investors and an at least partial
inability to diversify these risks, less exposed industries are
anticipated to have higher firm values. The opposite would
imply the presence of risk-seeking investors or a broader
investor base in more exposed industries. Whilst the existence of risk-seeking investors would violate theoretical
consensus and be in opposition to broad empirical evidence, the assumption of a broader investor base in riskier
industries can be reasonably justified by the observation
that sustainable investments only account for approximately 10 % of total assets under management (Derwall
et al. 2011). In addition, a large number of stock market
participants are still focused on dividend stocks with low
economic risk but high environmental and social risks,
such as energy, materials and utilities. Since we do not
know which theoretical argument best reflects reality, we
choose a two-sided hypothesis to account for the effect of
industry environmental and social exposure on firm value.
Hypothesis 2 The level of industry sustainability affects
the market value of a firm.
Momentum Shifts in the Perception of Corporate
Sustainability During the Financial Crisis
Before the financial collapse in September 2008, capital
market deregulation was the ruling principle in politics.
The financial crisis and its major negative impact on the
real economy caused a turnaround in societal and political
attitudes. At this point, the belief in the corporate worlds
power to self-regulate vanished. More state and supranational regulation has become a serious threat, in particular for the financial sector (Emeseh et al. 2010). Whilst
regulation is not an issue for the non-financial sectors,
debates about greed and the rationale of profit maximization are. As Kemper and Martin (2010) noted, the rules and
the values of firms to society changed overnight. Now, they
are employers first and producers of valuable goods second. Argandona (2009) interprets the crisis as an ethical
problem and proposes that genuine, ethical standards-based
corporate sustainability could have protected firms against
123
478
the negative impact of the financial crisis. This suggestion

is reasonable since there is evidence in the marketing literature that the crisis has influenced consumers such that
they now attach higher importance to environmental and
social issues. Gerzema and DAntonio (2011) report that
77 % of Americans agreed with the statement Since the
recession, I realize that how many possessions I have does
not have much to do with how happy I am, 72 % agreed
that I make it a point now to buy brands from companies
whose values are similar to my own, and two-thirds of all
respondents agreed that I make it a point to avoid buying
brands whose values contradict my own. Kotler (2011),
although provides no empirical evidence, also asserts a
similar shift in the business-to-business market. These
momentum shifts in consumers and contractors attitudes
towards corporate sustainability can potentially affect the
cash flow distribution of firms and therefore their market
values, provided these effects are recognized by the capital
markets.
These developments are also covered by a currently
emerging stream of research that links corporate sustainability with institutional theory. Campbell (2007) analyses
which institutions determine whether a firm acts in a
socially responsible manner. He concludes that firms are
more likely to be socially responsible if they are financially healthy, operate in a business environment with
moderate competition, or see themselves confronted with
state regulation or social movements that encourage or
even enforce this kind of conduct. We have good reason
to assume that these institutional settings changed dramatically during the financial crisis. State regulation has
increased or is more likely to be increased in the near
future, whilst the Occupy Wall Street movement is a clear
indicator for an increase in societal demand for socially
and environmentally responsible business practices. As
Fig. 1 Average GES ratings
during the financial crisis
123
Brammer et al. (2012, p. 6) aptly state, whilst before the

crisis a firm was considered a political creation for which
the state granted limited liability in order to facilitate the
accumulation of capital, the post-2008 era of financial
crisis has taught an important lesson: the limited liability
of the privately owned corporation has re-emerged as the
collective liability of society.
Although the financial crisis has changed the institutional setting towards a higher demand for corporate sustainability, at the same time the financial constraints and
increasing competition have prevented many firms from
meeting this demand. In fact, during times of economic
crises, firms tend to restrict themselves to short-term vital
activities and to reduce their spending on sustainability
projects, which are long term by definition (Waddock and
Graves, 1997; Karaibrahimoglu 2010). The degree of
restriction is anticipated to increase in step with the firmspecific impact of the crisis. The less the firm is affected,
the less non-vital activities are expected to be scaled back.
Support for this line of reasoning is illustrated in Fig. 1,
which shows the development of mean GES sustainability
ratings. The shaded area marks the time span between the
first major write-down of subprime loans by HSBC in
February 2007 and Lehman Brothers Chapter 11 filing,
during which a decline in average corporate sustainability
and a rise in average environmental risks across industries
were observed. Since Jensen and Meckling (1976) developed their theory of the firm, it has been widely accepted
that market valuation depends on asymmetric information
between the management and owners. During the financial
crisis, this asymmetry mainly referred to a given firms
exposure to it. Thus, firms that did not reduce their corporate sustainability activities signalled that they did not
suffer as much. Seen in aggregate, these and the abovementioned potential effects lead to Hypothesis 3.
Hypothesis 3 The financial crisis affected the capital

market perception of sustainability positively.
Hypothesis 3 can also be based on the idea that managers balance the expected benefits of corporate sustainability against its expected costs (McWilliams and Siegel
2001; Lundgren 2011). The financial crisis was an external
shock for the above-mentioned institutions, which has in
turn increased the expected benefits of corporate sustainability. However, firms have not been able to adjust their
levels of corporate sustainability to the new optimum level
immediately since this is a complex and time-consuming
task. Therefore, firms the management of which was more
optimistic with respect to the benefits of corporate sustainability before the crisis are now expected to have a
comparative advantage over firms which were more
reluctant to implement corporate sustainability strategies.
This idea applies to sustainability at the industry level as
well. Here, the ability to adjust is even more constrained.
To implement higher standards of business ethics, social
engagement or environmental protection can take several
years or even decades, if it is possible at all.
Interactions Between Corporate Sustainability
and Sustainability at the Industry Level
Recent empirical literature concentrates on the value relevance of corporate sustainability in industries that are
strongly exposed to environmental and social risk, such as
the electric utility industry in Hughes (2000) and the
chemical industry in Griffin and Mahon (1997). The
rationale behind this is the potentially greater importance
and visibility of sustainability issues in these industries
compared to less exposed sectors. In the case of water
pollution, non-sustainable behaviour on the part of an
insurance company has a far weaker negative impact on
biodiversity than if it comes from a global leading chemicals manufacturer. This argument is in line with the
empirical results of Brammer et al. (2006), who find that
environmental performance has a positive reputational
effect only in the chemicals, consumer products and
transportation sectors. Thus, it can be hypothesized that
sustainability at the corporate level is more important the
greater the environmental and social risks at the industry
level. However, Semenova (2011) argues that firms in more
exposed industries face more restrictive regulatory
requirements and have fewer opportunities to gain competitive advantages through sustainability activities. As a
consequence, their corporate sustainability efforts are perceived as costly activities without corresponding benefits.
As in the case of the capital markets general perception of
sustainability, both arguments appear reasonable, and
therefore Hypothesis 4 is two sided.
479
Hypothesis 4 The capital markets perception of corporate sustainability depends on industries exposure to
environmental and social risks.
Results of Prior Empirical Research

Prior research on local markets has found evidence that
corporate sustainability affects firm value, but in diverging directions. Using KLD social issue ratings for the
period 19912003, Bird et al. (2007) show that the market
value of S&P 500 firms is negatively affected if they fail
to meet regulatory and community standards with respect
to the environmental dimension, but that it is positively
affected if the firm abstains from proactive engagement in
employee relations. For the UK stock market, Brammer
et al. (2006) arrive at contradictory results. For the period
July 2002December 2005, their analysis of portfolio
returns for FTSE All-Share listed firms reveals a negative
relationship between environmental and community indicators and stock returns. Furthermore, they measure a
weakly positive relationship for the employment indicator.
Very closely related to our analysis is the empirical study
by Hassel et al. (2005) who investigate the effect of
environmental performance on the market value of
Swedish firms for the period June 1998September 2000.
Their results indicate a negative relationship between
environmental performance and market value. They
interpret this as evidence that investors perceive environmental responsibility activities as profit-decreasing
measures. In a follow-up study to Hassel et al. (2005),
Semenova et al. (2009) use the GES rating as a proxy for
environmental and social performance and find a positive
relationship with shareholder value between 2005 and
2008. Using the same dataset, Semenova (2011) finds
evidence of the positive effect of corporate sustainability
and of an interaction with environmental risks at the
industry level. Another study by Semenova and Hassel
(2008), which also uses the GES rating for U.S. companies from 2003 to 2006, measures a positive impact on
firm value for lower industry-specific environmental risk
as well as for higher environmental preparedness and
performance. Bagaeva (2010) applies the research design
by Hassel et al. (2005) to Russian listed firms for the
period 20052007. She finds that environmental performance has incremental value relevance and that investors
value lower environmental impacts positively. These
results are in line with the results of Guenster et al.
(2011), who find a positive effect of eco-efficiency in
U.S. companies between 1996 and 2004, together with a
time lag in this perception and an upwards trend over
time.
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Data and Methodology

Sustainability, Financial and Market Data
Our sample consists of all firms in the GES database from
December 2003 to June 2011 the financial and market data
of which are available in Thomson Financial Datastream/
Worldscope. Besides its reliability, the most important
advantage of the GES database over its direct opponent
KLD is that it covers the whole MSCI World universe
instead of only U.S. firms. It therefore includes firms from
26 different countries and various industries. For this study,
Datastream/Worldscope is preferable to the commonly
used alternative Compustat because a merged sample from
Compustat North America, Compustat Global, and Compustat Banks yielded a significantly lower coverage of the
firms rated by GES. Table 1 lists the firms and industries in
the sample.
Table 1 Country and industry
composition of sample
observations
Countries
Country
Industries
Frequency
Percent
4-Digit GICS
Frequency
Percent
United States
7,675
41.10
Capital goods
1,818
9.73
Japan
3,257
17.44
Materials
1,651
8.84
Great Britain
1,293
6.92
Banks
1,430
7.66
Canada
826
4.42
Energy
1,142
6.11
France
823
4.41
Utilities
1,019
5.46
Australia
729
3.90
Insurance
856
4.58
Germany
632
3.38
Diversified financials
839
4.49
Sweden
409
2.19
Real estate
836
4.48
Italy
388
2.08
Food, beverage & tobacco
801
4.29
Hong Kong
387
2.07
Retailing
724
3.88
Switzerland
Spain
358
317
1.92
1.70
Technology hardware & equipment

Health care equipment & services
719
702
3.85
3.76
Shanghai
254
1.36
Transportation
669
3.58
The
Netherlands
223
1.19
Consumer durables & apparel
669
3.58
Finland
188
1.01
Software & services
656
3.51
Belgium
168
0.90
Media
644
3.45
Norway
132
0.71
Pharmaceuticals, biotech & life sciences
639
3.42
Denmark
129
0.69
Telecommunication services
547
2.93
Greece
117
0.63
Automobiles & components
423
2.26
Austria
97
0.52
Consumer services
422
2.26
Portugal
87
0.47
Commercial & professional services
411
2.20
Ireland
New Zealand
71
57
0.38
0.31
Food & staples retailing

Semiconductors & semiconductor
equipment
405
397
2.17
2.13
196
1.05
61
0.33
18,676
100.00
Israel
38
0.20
Household & personal products
Luxembourg
15
0.08
Unknown
0.02
Cyprus
Unknown
Total
123
The GES rating assesses both environmental and social

risks at the industry level and the corresponding opportunities at the firm level. Industries are demarcated using the 6- or
8-digit MSCI Global Industry Classification Standards
(GICS) classification, and all ratings are measured on a
7-level scale ranging across C (high risk/low opportunities),
over C?, B-, B, B?, A-, to A (low risk/high opportunities).
The industry-specific environmental rating (IENV) is a
weighted average of the direct risks of the industry and the
indirect risks that result from dependencies on other industries. The social rating at the industry level (ISOC) averages
employee, community and supplier concerns.
At the firm level, GES breaks down the environmental
dimension into two subdimensions, environmental performance (FEPF) and environmental preparedness (FEPR).
Environmental preparedness captures the relevant efforts
by management such as environmental certification, environmental policy and programmes, implementation of an
0.02
18,676
100.00
Total
environmental management system, screening of suppliers

and environmental reporting. These efforts can, but do not
necessarily, result in better environmental performance.
Therefore, environmental performance is measured directly
using a battery of 21 indicators such as investment in
renewable energies, product recycling, decrease in greenhouse gas emissions and water use. The firm-specific social
ratings are broken down into employee (FEMP), community (FCOM) and supplier (FSUP) subratings. There are
between three and six direct indicators for each subcategory that are derived from the United Nations Universal
Declaration of Human Rights, the United Nations Convention on the Rights of the Child and the International
Labor Organizations Core Labor Convention. In this way,
the GES ratings provide reliable proxies for a reasonable
selection of corporate sustainability issues. Although the
equal weightings of indicators are arbitrary and the
assignments of scores are, at least to some extent, subject to
personal judgement, the rating process is highly transparent
and reproducible. To make use of the GES ratings, the
alphabetical scores are uniformly transformed to an integer
scale ranging from 1 (Score C) to 7 (Score A?) and are
interpreted as a metric variable. The database contains
ratings for the constituents of the MSCI World in 16
semiannual intervals during the period from the end of
2003mid-year 2011, which results in an initial sample of
21,723 observations, of which 18,676 are covered by Datastream/Worldscope. Table 2 contains an overview of the
GES variables used in this study.
The quarterly accounting and market data for each
semiannual observation of the GES ratings encompass
market capitalization (MV), book value of equity (BV), net
income (NI), the logarithm of total assets (lnTA), leverage
(LEV) defined as total debt divided by total assets, one-year
481
sales growth (SG), country and currency codes, and

accounting standards in use. Additionally, some derivative
variables are constructed. The loss variable LO takes the
value of net income if net income is negative and zero
otherwise. BVI, BVL, NII, NIL, LOI and LOL are the
interactions between book value of equity, net income and
loss with two dummy variables that indicate whether the
accounting information is generated by IAS/IFRS (suffix
I) or local standards (suffix L) instead of U.S.-GAAP.
However, the model contains no intercept terms for the
different accounting standards since they are collinear with
firm fixed effects. All accounting variables are translated
into U.S. dollar amounts at the daily exchange rate and
divided by total assets to mitigate the problem of different
scales (Barth and Clinch 2009). Table 3 summarizes the
descriptions of the descaled accounting and market data
variables.
The correlation matrix in panel B of Table 4 reveals a
strong correlation between all sustainability proxies. Firms
with a high degree of corporate sustainability in one
dimension tend to have a high degree of corporate sustainability in the other dimensions. However, the relationship is negative for sustainability proxies at both the firm
and industry level. The higher the corporate sustainability
score, the higher the environmental and social risks for a
given industry. This supports the idea that corporate sustainability acts as an opponent to serious industry environmental and social risks and is therefore more important
in exposed industries.
Reference Model and Removing Statistical Outliers
The empirical analysis begins with setting up a reference
valuation model that explains the market value of a firm in
Table 2 Overview of GES rating variables

Variable
Dimension
Description
IENV
Industry environmental
risk
Describes the environmental risks inherent in a specific industry at a specific point in time. Industries are
defined by their 6- or 8-digit GICS codes
FEPF
Firm environmental
performance
A measure of 21 indicators that measure current success in environmental issues
FEPR
Firm environmental
preparedness
Captures the efforts of the management in environmental sustainability, for instance, environmental
certification, environmental policy and programmes
ISOC
Industry social risk
Describes the social risks inherent in a specific industry at a specific point in time. Industries are defined by
their 6- or 8-digit GICS codes
FEMP
Firm employee rating
Firm rating for the compliance with general human rights issues, such as exclusion of child labour and
discrimination
FCOM
Firm community rating
Captures the engagement of a firm in the community. Indicators are, for instance, policies for local
community involvement, a document policy towards prevention of corruption and a policy to identify the
social impacts of the firms investments
FSUP
Firm supplier rating
Captures the efforts of a firm in screening its entire supply chain for compliance with human rights.
Indicators are the existence of a corresponding management system and a supplier policy that covers the
core value of the International Labor Organization
123
482
Table 3 Overview of accounting, market and instrumental variables

Variable
Mnemonic
Description
MV
MV
Market value, calculated as the product of ordinary shares and share price scaled by total assets (WC02999A)
BV
WC03501A
Common equity, which, amongst others, includes common stock value, retained earnings, capital surplus, capital
stock premiums and cumulative gain or loss of foreign currency translation. BV is scaled by total assets
(WC02999A)
NI
LO
WC01751A
Net income available to common, excluding extraordinary items. NI is scaled by total assets (WC02999A)
Loss, which takes the value of NI if NI is negative and a value of zero otherwise
BVI
Interaction variable of BV and a dummy that takes the value of 1 if the accounting standards are IAS/IFRS and zero
otherwise
BVL
Interaction variable of BV and a dummy that takes the value of 1 if the accounting standard is local and zero otherwise
NII
Interaction variable of NI and a dummy that takes the value of 1 if the accounting standards are IAS/IFRS and zero
otherwise
NIL
Interaction variable of NI and a dummy that takes the value of 1 if the accounting standard is local and zero otherwise
LOI
Interaction variable of LO and a dummy that takes the value of 1 if the accounting standards are IAS/IFRS and zero
otherwise
LOL
Interaction variable of LO and a dummy that takes the value of 1 if the accounting standard is local and zero otherwise
SG
WC08631A
Sales growth, calculated as follows: (Current years net sales or revenues divided by last years total net sales or
revenues - 1)*100
LEV
Leverage, calculated as the relation of total debt (WC03255A) to total assets (WC02999A)
TA
WC02999A
EGY
ENERDP033
Represents total assets, i.e. the sum of total current assets, long-term receivables, investment in unconsolidated
subsidiaries, other investments, net property plant and equipment and other assets
Total direct and indirect energy consumption, scaled by sales (WC01001A)
ACC
SOHSDP027
Number of injuries and fatalities reported by employees and contractors whilst working for the company, divided by
the number of employees (WC07011) and sales (WC01001A)
terms of its book value of equity, net income, the loss

variable, their interactions with the accounting standards
dummy variables, sales growth, leverage and the natural
logarithm of total assets as a proxy for size. In this way, the
model can be regarded as an extended version of the
empirical analogues of the Ohlson (1995) model, which is
commonly used in association studies to measure the
incremental value relevance of accounting and other
information (Barth et al. 2001; Hassel et al. 2005).
MV it b0 b1 BVit b2 NIit b3 LOit b4 BVIit
b5 BVLit b6 NIIit b7 NILit b8 LOI it
b9 LOLit b10 SGit b11 LEVit b12 lnTAit dt
gi it
(Reference model)
In the reference model, the indexes i are for the individual
cross-sectional unit and t for the time period. dt captures
the time effects, which are macroeconomic variables that
have the same effects on all firms, but differ from period to
period. The loss variable LO captures the capital markets
special perception of losses. The expected sign of its
coefficient is negative, whilst its absolute value is expected
to be smaller than that of the coefficient of net income. It
hence partly offsets the net income coefficient. The economic rationale behind this is the assumption that capital
123
market participants perceive losses as temporary and limited liability prevents negative market values (Hayn 1995;
Basu, 1997). Since quarterly data are released with a fairly
short delay, and capital markets are assumed to have the
ability to accurately anticipate accounting information, no
time lag is included. Nevertheless, all results that are
reported later in this paper have been checked for sensitivity to a time lag of three month and are found to be
robust to this modification.
Column A of Table 5 shows the regression results for all
the observations with available accounting and market
data. It is noticeable that the absolute value of the loss
variables coefficient is larger than its counterpart for net
income. This result is not in line with economic theory
because it implies that higher losses are connected to a
higher market value. Furthermore, the marginal effects of
book value of equity under IAS/IFRS, which is the sum of
the coefficients on BV and BVI, and local accounting
standards, which is the sum of the coefficients on BV and
BVL, are negative. Therefore, the estimates of the reference
model lack economic reason. It is known from other
empirical studies (Collins et al. 1997; Hirschey et al. 2001;
Rajgopal et al. 2003) that removing statistical outliers can
solve this problem. After removing outliers in a three-step
procedure, defined as observations with an externally studentized residual greater than 12 (8 in the second and 4 in
2.12
1.00
7.00
Median
SD
Min
Max
-0.13***
BVL
***
LO
0.15
-0.60
0.00
0.02
SD
Max
0.00
Median
Min
0.00
Mean
Panel A: Descriptive statistics
lnTA
0.99
-3.55
0.19
0.00
0.09
BVI
0.27
***
0.03***
-0.09***
LEV
***
-0.04
0.00
SG
0.98
-0.49
0.21
0.00
0.10
BVL
0.17
***
0.02***
-0.04
-0.02
***
0.02
-0.02
***
-0.01
**
0.02
-0.02
**
**
0.02
0.08
***
**
***
-0.03
0.08
***
0.08***
0.19
0.01
0.00
***
***
-0.10
0.00
0.37
0.40
***
0.62***
-0.30***
1.00
7.00
1.00
1.89
4.00
3.39
FEPR
**
-0.04
***
-0.03
***
0.02**
0.20
***
LOL
LOI
NIL
NII
-0.14
BVI
***
0.01
LO
***
**
0.02
-0.03***
-0.02***
NI
***
***
-0.14
-0.07***
0.40
0.40
***
0.04
-0.18***
***
0.10
***
-0.12
***
0.65
***
-0.18***
0.78***
1.00
7.00
1.00
1.64
3.00
2.66
FEPF
MV
BV
FSUP
FCOM
-0.22
FEMP
***
0.66
***
-0.42
ISOC
FEPR
-0.27***
FEPF
***
1.00
IENV
Panel B: Correlation matrix
3.76
4.00
Mean
Panel A: Descriptive statistics
IENV
***
1.08
-0.49
0.02
0.00
0.01
NII
0.27
***
-0.01
-0.01
0.01
0.00
-0.04
***
-0.05
***
-0.10***
-0.09
0.00
-0.10***
-0.11
-0.27***
***
-0.04
***
-0.12***
-0.13***
1.00
7.00
1.00
2.21
4.00
3.77
ISOC
Table 4 Descriptive statistics and correlation matrix for model variables
***
***
0.22
-0.47
0.01
0.00
0.00
NIL
0.31
***
0.07***
-0.04
0.02
**
-0.02
**
***
-0.11
0.10
***
-0.21***
0.24
0.01
-0.01
-0.12
-0.15***
***
0.53***
0.58***
1.00
7.00
1.00
1.44
3.00
2.89
FEMP
***
***
***
0.00
-0.49
0.01
0.00
0.00
LOI
0.24
***
0.08***
-0.01
0.06
0.02
**
-0.08
0.02
**
-0.27***
0.05
0.01
0.02**
0.01
-0.10***
0.44***
1.00
7.00
1.00
1.34
3.00
2.90
FCOM
***
***
0.00
-0.47
0.01
0.00
0.00
LOL
***
-0.01
0.27
***
***
-0.03
0.03
0.00
-0.05
0.10
***
-0.18***
0.18
0.02
**
0.05***
-0.01
-0.11***
1.00
7.00
1.00
1.37
1.00
1.97
FSUP
4805.42
-3691.93
64.46
6.27
8.86
SG
-0.48
***
-0.17***
0.05
***
0.03
***
0.00
0.11
***
0.15
***
0.01
0.03
***
0.01
0.36***
1.00
0.36***
33.06
0.00
1.28
0.68
1.05
MV
3.97
0.00
0.19
0.23
0.26
LEV
-0.45
***
-0.51***
0.02
***
0.00
0.01
0.17
***
0.03
***
0.35***
0.26
***
0.02**
0.20***
1.00
1.03
-3.55
0.23
0.37
0.37
BV
25.35
12.22
1.65
16.43
16.68
lnTA
-0.19***
-0.12***
0.03***
0.25***
0.36***
0.33***
0.65***
0.01*
0.13***
0.67***
1.00
1.08
-0.60
0.03
0.01
0.02
NI

483
123
1.00
0.08***
1.00
0.01
-0.01
0.00
-0.02***
0.04***
Regression Models
To test for the effects of the various levels and dimensions of
corporate sustainability on firm value, the market value of a
firms equity is regressed on its GES ratings and all of the
independent variables in the reference model, which are now
interpreted as control variables and summarized under CTRL.
0.04***
Variables
Column A: before
removing outliers
Column B: after
removing outliers
BV
1.3808***
0.9431***
(0.1020)
(0.0398)
-0.12***
NI
All financial variables are scaled by total assets
Asterisks indicate statistical significance at the 1 % (***), 5 % (**) and 10 % (*) levels
-0.11***
LO
-0.24***
-0.10***
0.06***
0.01
0.00
-0.16***
-0.01
0.00
-0.12***
-0.06***
0.01
SG
LEV
the third step) or a Cooks measure of distance greater than

12/n (8/n, 4/n) with n as the number of observations, we
obtain the coefficients in Column B of Table 5. Now, all
coefficients have economically sound estimates.
After correcting for outliers, we end up with a sample of
16,619 observations from 1,993 firms. The entire sample
reduction process from missing accounting or market data
to the removal of outliers is reported in Table 6.
Table 5 Regression of market value on controls before and after

removing outliers
lnTA
-0.05***
0.02
0.02
-0.09***
***
1.00
1.00
-0.01
-0.12
0.04
0.34
LOL
0.02**
1.00
0.51***
0.02
***
***
***
-0.10
0.53
LOI
***
0.46***
0.04
***
***
1.00
-0.06***
0.21
NIL
-0.12***
1.00
0.48***
-0.11
***
***
0.39***
NII
0.27
***
-0.23***
BVL
0.02
**
1.00
1.00
-0.01
BVI
LO
Panel B: Correlation matrix
***
LOI
NIL
NII
BVL
BVI
LO
Table 4 continued
123
***
LOL
SG
1.00
lnTA
LEV
484
BVI
BVL
11.0762***
8.7503***
(0.5773)
(0.2633)
-11.5836***
-8.6348***
(0.7280)
(0.3154)
-1.6401***
-0.0919*
(0.1234)
(0.0487)
-1.7591***
-0.2674***
(0.1406)
(0.0526)
NII
-6.8652***
(0.6821)
-6.2689***
(0.3336)
NIL
-6.7727***
-5.9098***
(0.9242)
(0.3874)
5.9914***
5.4080***
(0.9939)
(0.4556)
7.3164***
5.3147***
LOI
LOL
SG
LEV
lnTA
(1.4505)
(0.5493)
0.0093
0.0019
(0.0077)
(0.0034)
0.2713***
-0.2193***
(0.0710)
(0.0297)
-0.4581***
-0.2523***
(0.0085)
(0.0034)
Observations
18,676
16,619
Firms
Adj. R2
2,266
1,993
0.2321
0.5135
Standard errors displayed in parentheses. Asterisks indicate statistical

significance at the 1 % (***), 5 % (**) and 10 % (*) levels. Variables
are defined as in Table 3

Table 6 Sample reduction
Date
485
GES
Tape
Missing accounting
or market data
Statistical
outliers
Sample after
removing outliers
End of Q04/2003
890
233
657
46
611
End of Q02/2004
1,000
297
703
94
609
End of Q04/2004
994
248
746
59
687
End of Q02/2005
1,000
292
708
59
649
End of Q04/2005
1,000
205
795
80
715
End of Q02/2006
999
195
804
74
730
End of Q04/2006
1,000
128
872
75
797
End of Q02/2007
1,002
162
840
65
775
End of Q04/2007
1,883
254
1,629
255
1,374
End of Q02/2008
1,941
267
1,674
213
1,461
End of Q04/2008
End of Q02/2009
1,696
1,676
150
142
1,546
1,534
172
80
1,374
1,454
End of Q04/2009
1,659
93
1,566
112
1,454
End of Q02/2010
1,658
103
1,555
113
1,442
End of Q04/2010
1,655
60
1,595
164
1,431
End of Q02/2011
Total
1,679
227
1,452
396
1,056
21,732
3,056
18,676
2,058
16,619
Since the correlation matrix in Table 4 and variance

inflation indicators calculated on the basis of a model that
includes all sustainability proxies simultaneously indicate
strong collinearity between the sustainability proxies,
Regression (1) estimates the effects separately for each
corporate sustainability dimension represented by FSUS.
Nevertheless, the corresponding risk rating at the industry
level, represented in the model by ISUS, is always included
because omittance would induce bias as it correlates with
the corporate sustainability proxy.
MVit b0 b1 ISUSit b2 FSUSit b3 CTRLit
dt gi it
Sample before
removing outliers
If, as stated by Hypothesis 3, the financial crisis brought

about a change in the perception of corporate sustainability
or industry environmental and social risks, the regression
coefficient of the sustainability proxies in Model (1) should
have shifted with the onset of the crisis. To capture this
effect, the 16 semiannual cross sections in the sample are
divided into two parts, one ranging from the end of 2003mid
2008 and the other ranging from the end of 2008mid 2011.
The first part hence contains all observations before Lehman
Brothers Chapter 11 filing, whilst the second contains all
observations after this triggering event at the peak of the
financial crisis. This partitioning enters Model (2) in the form
of a dummy variable CRISIS that takes the value of 1 if the
observation is from the later part and zero otherwise. CRISIS
interacts with the sustainability proxies, and the coefficients
on the interactions measure the crisis-induced shift in the
marginal effect of sustainability on the market value of firms.
MVit b0 b1 ISUSit b2 CRISISt ISUSit b3 FSUSit

b4 CRISISt FSUSit b5 CTRLit dt gi it :
2
The coefficients b1 and b3 in Model (2) capture the marginal effects under the condition that CRISIS is zero. The
estimates for b1 ? b2 and b3 ? b4 measure the marginal
effects when CRISIS is one. Positive estimates for the
coefficients b2 and b4 would indicate a shift to a more
positive perception of sustainability, compared to before
the crisis. Note that no intercept dummy for the crisis is
included since it would be perfectly collinear with the time
dummies dt.
The interaction effects of sustainability at the firm and at
the industry level are tested by a moderated regression
analysis, which includes interaction terms of the explanatory variables.
MVit b0 b1 ISUSit b2 CRISISt ISUSit b3 FSUSit
b4 CRISISt FSUSit b5 ISUSit FSUSit
b6 CRISISt ISUSit FSUSit b7 CTRLit
dt gi it :
3
In moderated regression analysis with continuous variables, as in Model (3), the interpretation of the coefficient
substantially differs from that in purely additive multiple
linear regression models. The coefficient b5 captures the
contingent effects of the research interest variables on each
others coefficients before the crisis. The coefficient b6
123
486
captures this effect when CRISIS is one (Dawson and

Richter 2006). However, the constitutive elements, which
are the terms without interactions, cannot be directly
interpreted in a meaningful sense. The term b3 FSUSit, for
instance, measures the marginal effect of a one-unit
increase in corporate sustainability on the market value of a
firm conditional on CRISIS and ISUS being zero. Whilst the
interpretation of the first condition is straightforward
(before the crisis), the second is not, in particular when
the sample consists of no observations with ISUS being
zero (Brambor et al. 2006). Therefore, to draw inferences
from Model (3), we apply a plotting technique that depicts
the marginal effect of corporate sustainability on the
market value of a firm conditional on the level of industry
sustainability.
instruments from overcoming endogeneity. Whether an

instrumental variable approach with semi-endogenous
instruments is preferable to not instrumenting depends on
the unknown correlations between the instruments and the
error term, between the endogenous regressors and the
instruments, and between the endogenous regressors and
the error term (Larcker and Rusticus 2010). Therefore, we
report the results for both the instrumented and noninstrumented models. All the models in this study are
estimated with the two-step GMM estimator that provides
efficient estimates and standard errors that are robust to
arbitrary heteroskedasticity and intra-firm correlation of the
residuals.
Results
Endogeneity and Method of Estimation
Regression Results
The degree to which a firm follows the concept of sustainability is at the discretion of the management, and the
net benefits that arise from a given level of corporate
sustainability may depend on size, which is proxied by
market capitalization. Therefore, the regression models
potentially suffer from endogeneity due to reverse causality. Other potential sources of endogeneity are measurement errors in the sustainability proxies and omitted
variables. In these cases, the coefficient estimates are
biased and the results of the empirical analysis are unreliable (Wooldridge 2010, Chap. 8). To mitigate the problem
of endogeneity, we estimate each model using an instrument variable approach.
Since it is difficult to find valid and relevant instruments
for corporate sustainability in a price-level regression, we
do not claim to have found perfect instruments, but rather
the best available instruments. For the environmental
dimensions of corporate sustainability, these are the 6-digit
GICS industry averages of the potentially endogenous
variables calculated without the instrumented observation
and the industry average of energy consumption scaled by
sales. The proxies for corporate sustainability in the social
dimension are instrumented by their industry averages and
the industry average of the total accidents per employees
scaled by sales. Using industry averages as instruments
solves the problem of pure reverse causality that is not the
result of omitted variables because a firms market valuation is unlikely to affect the level of corporate sustainability of other firms in the same industry. The calculation
procedure also largely averages out random measurement
errors. However, there can be industry-specific factors that
affect both valuation of the firms and their chosen level of
the corporate sustainability. If these effects are constant
over time, they will be mitigated by fixed effects estimation. If they vary over time, they will prevent the
123
Tables 7 and 8 show the regression results for Model (1).

At the industry level, in all Specifications (a)(e), the
perception of sustainability in the environmental and social
dimensions is significantly negative at the 1 % level. This
implies that a broader investor base prefers to invest in
environmentally and socially riskier industries. At the firm
level, there is only weak statistical evidence of a negative
perception of sustainability in the community dimension
when instrument variable estimation is applied (Table 8).
Thus, Model (1) provides no substantial support for
Hypothesis 1, but does provide evidence for Hypothesis 2
in a negative direction.
In Model (2), the impact of the financial crisis on the
perception of sustainability is included in the form of
interaction between a dummy variable CRISIS and the
sustainability proxies from GES. Tables 9 and 10 show
the regression results for the estimation of this model. At the
industry level, Specifications (a) and (b) in both the instrumented and non-instrumented regression measure a significantly positive effect of the crisis on the perception of lower
environmental risks, the latter being equivalent to higher
values of the rating score IENV. At first glance, the results
are inconclusive concerning the effect of the crisis on the
perception of industry-related social risks. In Specification
(c), the impact is significantly positive, whereas in Specification (e), it is negative. The divergence of these results can
be attributed to a substantial sample reduction of almost five
thousand observations due to missing values of the variable
FSUP. However, when the analysis is conducted with a
multiply imputed dataset or with ISUS and controls as
explanatory variables alone (not reported), a statistically
significant positive impact of the crisis is measured.
At the firm level, the results reported in Table 9 show a
significantly positive change in the perception of
487
Table 7 Regression results for Model (1)

Variables
Hyp.
Exp.
(a)
(b)
Variables
Hyp.
Exp.
(c)
(d)
(e)
IENV
H2
-0.0329***
-0.0332***
ISOC
H2
-0.0302***
-0.0228***
-0.0208***
(0.0044)
(0.0044)
(0.0048)
(0.0052)
(0.0057)
FEPF
H1
FEPR
H1
-0.0061
FEMP
H1
FCOM
H1
(0.0038)
-0.0036
(0.0040)
-0.0049
-0.0011
(0.0042)
(0.0045)
FSUP
H1
0.0018
(0.0055)
BV
0.9552***
(0.0919)
(0.0917)
NI
8.7162***
(0.7098)
LO
BVI
BVL
NII
NIL
LOI
LOL
0.9566***
BV
0.9388***
(0.0915)
(0.0972)
(0.1006)
8.7030***
(0.7107)
NI
8.6904***
(0.6970)
8.6614***
(0.6819)
8.4205***
(0.6652)
-8.6282***
-8.6188***
LO
-8.5906***
-8.5593***
-8.3554***
(0.7626)
(0.7637)
(0.7494)
(0.7343)
(0.7137)
-0.1025
-0.1076
-0.0784
-0.0240
-0.0411
(0.1181)
(0.1181)
(0.1215)
(0.1293)
(0.1318)
-0.2752**
-0.2750**
-0.2512**
-0.2986**
-0.3351***
(0.1167)
(0.1164)
(0.1187)
(0.1248)
(0.1271)
-6.2491***
-6.2401***
-6.1640***
-5.8863***
-5.2990***
(0.7963)
(0.8010)
(0.8147)
-5.9008***
-5.8013***
-4.9586***
(0.8375)
(0.8312)
(0.8557)
LOI
5.4156***
4.8546***
4.2495***
(0.9021)
(0.9185)
(1.0200)
LOL
5.3260***
5.0148***
4.0153***
(0.8034)
(0.8027)
-5.9537***
-5.9317***
(0.8464)
(0.8479)
5.4559***
5.4533***
(0.9056)
(0.9052)
5.3637***
5.3473***
BVI
BVL
NII
NIL
0.9451***
0.9675***
(0.9535)
(0.9551)
(0.9441)
(0.9419)
(0.9726)
SG
0.0018
(0.0029)
0.0016
(0.0029)
SG
0.0020
(0.0029)
0.0040
(0.0030)
0.0225*
(0.0127)
LEV
-0.1981***
-0.1968***
LEV
-0.1953***
-0.1541***
-0.1619***
(0.0532)
(0.0531)
(0.0525)
(0.0550)
(0.0622)
-0.2522***
-0.2521***
-0.2523***
-0.2528***
-0.2614***
(0.0057)
(0.0057)
(0.0057)
(0.0059)
(0.0064)
Time dummies
YES
YES
Time dummies
YES
YES
YES
Firm dummies
YES
YES
Firm dummies
YES
YES
YES
Observations
16,556
16,556
Observations
16,555
13,890
11,590
lnTA
lnTA
Firms
1,968
1,968
Firms
1,968
1,781
1,399
Adj. R2
0.5202
0.5201
Adj. R2
0.5193
0.5334
0.5465
Heteroskedasticity and cluster robust standard errors from GMM estimation are displayed in parentheses. Asterisks indicate statistical significance at the 1 % (***), 5 % (**) and 10 % (*) levels. Variables are defined as in Tables 2 and 3
environmental performance and corporate sustainability in

the employee dimension. The instrument variable approach
indicates that this effect also exists for the community
dimension, although the level of significance is weak
(Table 10). Thus, we note that the model estimates provide
support for Hypothesis 3. The financial crisis has had a
positive effect on the perception of corporate sustainability
in specific dimensions. Model (2) also provides new
estimates for the perception of corporate sustainability

before the financial crisis. The coefficients of environmental
performance and sustainability in the employee dimension
are negative when CRISIS is zero. This is true for the
community dimension when instrument variable regression
is applied. Hence, when the variable CRISIS is included,
there is empirical evidence for the materiality of some of the
corporate sustainability dimensions in firm valuation.
123
488
Table 8 Instrument variable regression results for Model (1)

Variables
Hyp.
Exp.
IENV
H2
FEPF
H1
FEPR
H1
(a)
(b)
Variables
Hyp.
Exp.
(c)
(d)
(e)
-0.0390***
-0.0376***
ISOC
H2
-0.0383***
-0.0270***
-0.0295***
(0.0049)
(0.0050)
(0.0053)
(0.0053)
(0.0070)
-0.0288
FEMP
H1
FCOM
H1
FSUP
H1
(0.0449)
-0.0140
(0.1309)
-0.0068
-0.0694**
(0.0290)
(0.0335)
0.1004
(0.1041)
BV
NI
LO
BVI
BVL
NII
0.9475***
0.9611***
BV
0.8782***
0.8223***
0.8505***
(0.1055)
(0.1022)
8.0837***
(0.6807)
(0.1304)
(0.1108)
(0.1124)
8.1269***
(0.6891)
NI
7.7301***
(0.6466)
7.8526***
(0.6467)
7.8451***
(0.7046)
-7.9594***
-8.0296***
LO
-7.5834***
-7.7448***
-7.7841***
(0.7446)
(0.7447)
(0.7051)
(0.7099)
(0.7727)
-0.1369
-0.1484
-0.0341
0.0226
-0.0186
(0.1243)
(0.1277)
(0.1641)
(0.1458)
(0.1403)
-0.2679**
-0.2778**
BVL
-0.1903
-0.1643
-0.1620
(0.1343)
(0.1402)
(0.1427)
NII
-4.8914***
-5.1992***
-4.5043***
(0.8020)
(0.7872)
(0.8182)
NIL
-4.4146***
-4.5160***
-4.6910***
(1.1290)
(0.8449)
(1.0117)
LOI
3.8665***
4.1693***
3.0369***
(0.9367)
(0.9176)
(1.0373)
LOL
3.4617***
3.5938***
3.7626***
(0.1247)
(0.1233)
-5.5598***
-5.6712***
BVI
(0.7954)
(0.7809)
-5.4538***
-5.4871***
(0.8305)
(0.8576)
4.7348***
4.8701***
(0.9067)
(0.8825)
LOL
4.7313***
4.8200***
(0.9470)
(0.9644)
(1.2201)
(0.9727)
(1.1615)
SG
0.0012
(0.0028)
0.0012
(0.0029)
SG
0.0002
(0.0039)
0.0016
(0.0032)
0.0076
(0.0154)
LEV
-0.2329***
-0.2229***
LEV
-0.1966***
-0.1660***
-0.1873**
(0.0604)
(0.0563)
(0.0578)
(0.0619)
(0.0728)
-0.2487***
-0.2493***
-0.2488***
-0.2508***
-0.2576***
(0.0059)
(0.0058)
(0.0058)
(0.0060)
(0.0068)
Time dummies
YES
YES
Time dummies
YES
YES
YES
Firm dummies
YES
YES
Firm dummies
YES
YES
YES
Observations
15,121
15,121
Observations
13,284
11,638
9,742
NIL
LOI
lnTA
lnTA
Firms
1,896
1,896
Firms
1,789
1,640
1,294
Adj. R2
0.5227
0.5257
Adj. R2
0.5256
0.5163
0.5134
KleibergenPaap (KP)
17.1523
40.4726
KP
4.5025
53.0325
5.3760
p-value (KP)
0.0002
0.0000
p-value (KP)
0.1050
0.0000
0.0680
Hansen-J
0.0014
0.3533
Hansen-J
0.4660
0.1843
0.1641
p-value (J)
0.9710
0.5538
p-value (J)
0.4950
0.6686
0.6859
Heteroskedasticity and cluster robust standard errors from GMM estimation are displayed in parentheses. Asterisks indicate statistical significance at the 1 % (***), 5 % (**) and 10 % (*) levels. Variables are defined as in Tables 2 and 3. The Kleibergen-Paap (KP) Wald F-statistic tests
the relevance of the instruments. Its null hypothesis is that the instruments are uncorrelated with the endogenous regressors (Kleibergen and Paap
2006). Hansen-J is a test of the over-identifying restrictions. Its null hypothesis is that the instruments are exogenous (Hansen 1982)
The coefficients estimated in Model (2) measure the

perception of sustainability before the crisis and the change
induced by the crisis. To measure the marginal effect of
123
sustainability on shareholder value after September 2008,

we calculate the sum of the coefficient before the crisis and
the coefficient of the crisis interaction term. The standard
H3
CRISIS 9 FEPF
H3
CRISIS 9 FEPR
1,968
0.5208
Firm dummies
Observations
Firms
Adj. R2
0.5203
1,968
YES
16,556
YES
YES
(0.0001)
0.0000
(0.0042)
0.0056
(0.0042)
-0.0056
H3
CRISIS 9 FSUP
Adj. R2
Firms
Firm dummies
Observations
Time dummies
CTRL
(FSUP|CRISIS = 1)
H1
H3
H1
H3
H1
H3
H2
Hyp.
FSUP
(FCOM|CRISIS = 1)
CRISIS 9 FCOM
FCOM
(FEMP|CRISIS = 1)
CRISIS 9 FEMP
FEMP
(ISOC|CRISIS = 1)
CRISIS 9 ISOC
ISOC
Variables
Exp.
0.5224
1,968
YES
16,555
YES
YES
0.0096*
(0.0052)
(0.0046)
0.0167***
(0.0042)
-0.0071*
(0.0064)
-0.0095
(0.0033)
0.0179***
(0.0048)
-0.0274***
(c)
0.5335
1,781
YES
13,890
YES
YES
(0.0070)
-0.0004
(0.0053)
0.0015
(0.0047)
-0.0019
(0.0073)
-0.0174**
(0.0041)
0.0050
(0.0053)
-0.0224***
(d)
0.5480
1,399
YES
11,590
YES
YES
(0.0072)
0.0015
(0.0065)
-0.0022
(0.0059)
0.0037
(0.0008)
-0.0371***
(0.0062)
-0.0191***
(0.0057)
-0.0180***
(e)
Heteroskedasticity and cluster robust standard errors from GMM estimation are displayed in parentheses. Asterisks indicate statistical significance at the 1 % (***), 5 % (**) and 10 % (*) levels.
Variables are defined as in Tables 2 and 3
YES
YES
16,556
Time dummies
YES
0.0005
(0.0333)
(0.0042)
0.0089**
(0.0038)
-0.0084**
-0.0295***
(0.0049)
-0.0293***
(0.0033)
(0.0031)
(0.0049)
0.0057*
0.0053*
-0.0352***
(0.0045)
-0.0346***
(b)
(0.0044)
(a)
CTRL
(FEPR|CRISIS = 1)
H1
FEPR
?
(FEPF|CRISIS = 1)
H1
FEPF
H3
CRISIS 9 IENV
H2
IENV
Exp.
(IENV|CRISIS = 1)
Hyp.
Variables

489
123
123
H3
CRISIS 9 FEPF
H3
CRISIS 9 FEPR
(0.0133)
15.9803
0.0012
0.0808
0.9600
KleibergenPaap
p-value (KP)
Hansen-J
p-value (J)
0.8620
0.2970
0.0000
35.2655
0.5246
1,896
15,121
YES
YES
YES
(0.0370)
-0.0130
(0.0129)
0.0073
(0.0330)
H3
CRISIS 9 FSUP
p-value (J)
Hansen-J
p-value (KP)
KP
Adj. R2
Firms
Observations
Firm dummies
Time dummies
CTRL
(FSUP|CRISIS = 1)
H1
H3
H1
H3
H1
H3
H2
Hyp.
FSUP
(FCOM|CRISIS = 1)
CRISIS 9 FCOM
FCOM
(FEMP|CRISIS = 1)
CRISIS 9 FEMP
FEMP
(ISOC|CRISIS = 1)
CRISIS 9 ISOC
ISOC
Variables
Exp.
0.8620
0.2970
0.0692
7.0870
0.5168
1,789
13,284
YES
YES
YES
(0.0923)
0.0632
(0.0208)
0.0036*
(0.1008)
0.0274
(0.0082)
-0.0189**
(0.0046)
0.0175***
(0.0057)
-0.0364***
(c)
0.2980
2.4240
0.0000
44.0512
0.5006
1,640
11,638
YES
YES
YES
(0.4890)
-0.0258
(0.0333)
0.0605*
(0.0349)
-0.0863**
(0.0273)
-0.0144*
(0.0049)
0.0086*
(0.0054)
-0.0230***
(d)
0.0073
9.8400
0.0811
6.7270
0.5511
1,294
9,742
YES
YES
YES
(0.0836)
-0.0513
(0.0291)
-0.0154
(0.0908)
-0.0359
(0.0123)
-0.0447***
(0.0090)
-0.0211**
(0.0065)
-0.0236***
(e)
Heteroskedasticity and cluster robust standard errors from GMM estimation are displayed in parentheses. Asterisks indicate statistical significance at the 1 % (***), 5 % (**) and 10 % (*) levels. Variables are defined as
in Tables 2 and 3. The KP Wald F-statistic tests the relevance of the instruments. Its null hypothesis is that the instruments are uncorrelated with the endogenous regressors (Kleibergen and Paap 2006). Hansen-J is a test
of the over-identifying restrictions. Its null hypothesis is that the instruments are exogenous (Hansen 1982)
1,896
0.5129
15,121
Observations
Adj. R2
YES
Firm dummies
Firms
YES
Time dummies
(0.0333)
0.0086
YES
(0.0326)
0.0474***
-0.0203
(0.0049)
-0.0388
(0.0050)
(0.0052)
-0.0333***
(0.0044)
-0.0332***
0.0087*
(0.0067)
0.0145***
-0.0420***
-0.0477***
(b)
(0.0057)
(a)
CTRL
(FEPR|CRISIS = 1)
H1
FEPR
?
(FEPF|CRISIS = 1)
H1
FEPF
H3
CRISIS 9 IENV
H2
IENV
Exp.
(IENV|CRISIS = 1)
Hyp.
Variables
490
(0.0062)
YES
YES
16,556
1,968
0.5209
Time dummies
Firm dummies
Observations
Firms
Adj. R2
0.5212
1,968
16,556
YES
YES
YES
(0.0022)
-0.0063***
(0.0020)
-0.0064***
(0.0015)
0.0001
(0.0081)
0.0285***
(0.0079)
Adj. R2
Firms
Observations
Firm dummies
Time dummies
CTRL
(ISOC 9 FSUP|CRISIS = 1)
Exp.
H4
H4
H4
Hyp.
CRISIS 9 ISOC 9 FSUP
ISOC 9 FSUP
CRISIS 9 FSUP
FSUP
(ISOC 9 FCOM|CRISIS = 1)
CRISIS 9 ISOC 9 FCOM
ISOC 9 FCOM
CRISIS 9 FCOM
FCOM
(ISOC 9 FEMP|CRISIS = 1)
CRISIS 9 ISOC 9 FEMP
ISOC 9 FEMP
CRISIS 9 FEMP
FEMP
CRISIS 9 ISOC
ISOC
Variables
0.5266
1,968
16,555
YES
YES
YES
(0.0013)
-0.0088***
(0.0011)
-0.0033***
(0.0010)
-0.0055***
(0.0059)
0.0242***
(0.0062)
0.0145**
(0.0042)
0.0257***
(0.0048)
-0.0240***
(c)
0.5371
1,781
13,890
YES
YES
YES
(0.0015)
-0.0078***
(0.0014)
-0.0077***
(0.0013)
-0.0001
(0.0064)
0.0225***
(0.0063)
-0.0011
(0.0046)
0.0181***
(0.0052)
-0.0221***
(d)
0.5509
1,399
11,590
YES
YES
YES
(0.0030)
-0.0115***
(0.0023)
-0.0103***
(0.0022)
-0.0012
(0.0094)
0.0283***
(0.0082)
0.0050
(0.0066)
-0.0085
(0.0057)
-0.0166***
(e)
YES
(0.0020)
-0.0034*
(0.0020)
-0.0020
(0.0013)
-0.0014
(0.0082)
0.0156*
-0.0059
(0.0073)
(0.0065)
-0.0031
0.0277***
0.0118*
-0.0388***
(0.0068)
-0.0323***
(b)
(0.0058)
(a)
CTRL
(IENV 9 FEPR|CRISIS = 1)
?
?
H4
CRISIS 9 IENV 9 FEPR
IENV 9 FEPR
CRISIS 9 FEPR
FEPR
(IENV 9 FEPF|CRISIS = 1)
Exp.
H4
Hyp.
CRISIS 9 IENV 9 FEPF
IENV 9 FEPF
CRISIS 9 FEPF
FEPF
CRISIS 9 IENV
IENV
Variables

491
123
123
YES
YES
Time dummies
(0.0158)
-0.0056***
-0.0636***
(0.0112)
(0.0085)
0.0072
(0.0453)
0.2805***
(0.0412)
YES
YES
(0.0127)
-0.0372***
(0.0079)
-0.0396***
(0.0087)
0.0023
(0.0345)
0.1697***
(0.0456)
-0.0177
(0.0286)
(0.0359)
-0.0510
0.1525***
(0.0257)
0.2041***
-0.0751***
(0.0191)
(b)
-0.0876***
(a)
CTRL
(IENV 9 FEPR|CRISIS = 1)
?
?
H4
CRISIS 9 IENV 9 FEPR
IENV 9 FEPR
CRISIS 9 FEPR
FEPR
(IENV 9 FEPF|CRISIS = 1)
Exp.
H4
Hyp.
CRISIS 9 IENV 9 FEPF
IENV 9 FEPF
CRISIS 9 FEPF
FEPF
CRISIS 9 IENV
IENV
Variables
YES
(0.0094)
-0.0054
(0.0062)
0.0031
(0.0090)
-0.0085
(0.0391)
0.0488
(0.0356)
-0.0927***
(0.0103)
(0.0112)
0.0035
(0.0086)
-0.0191**
(d)
(0.0844)
-0.0335
(0.0148)
-0.0016
(0.0067)
-0.0201***
(e)
(ISOC 9 FSUP|CRISIS = 1)
Time dummies
CTRL
CRISIS 9 ISOC 9 FSUP
YES
YES
YES
YES
(0.0157)
-0.0206
(0.0127)
-0.0300**
(0.0115)
0.0094
YES
-0.0439***
-0.0108**
(0.0054)
(0.0069)
-0.0331***
(0.0329)
0.0972***
(0.1196)
0.3079**
(0.0129)
0.0433***
(0.0073)
-0.0203***
(c)
ISOC 9 FSUP
Exp.
0.1389*
(0.0761)
H4
H4
H4
Hyp.
CRISIS 9 FSUP
FSUP
(ISOC 9 FCOM|CRISIS = 1)
CRISIS 9 ISOC 9 FCOM
ISOC 9 FCOM
CRISIS 9 FCOM
FCOM
(ISOC 9 FEMP|CRISIS = 1)
CRISIS 9 ISOC 9 FEMP
ISOC 9 FEMP
CRISIS 9 FEMP
FEMP
CRISIS 9 ISOC
ISOC
Variables
492
Hansen-J
p-value (J)
p-value (J)
2.0740
3.7290
0.4440
Hansen-J
0.7220
p-value (KP)
0.0003
0.0000
KP
p-value (KP)
0.4971
37.1560
23.6104
0.4218
KP
Adj. R
Number of firms
1,896
1,896
Number of firms
Adj. R
493
Heteroskedasticity and cluster robust standard errors from GMM estimation are displayed in parentheses. Asterisks indicate statistical significance at the 1 % (***), 5 % (**) and 10 % (*) levels.
Variables are defined as in Tables 2 and 3. The KP Wald F-statistic tests the relevance of the instruments. Its null hypothesis is that the instruments are uncorrelated with the endogenous
regressors (Kleibergen and Paap 2006). Hansen-J is a test of the over-identifying restrictions. Its null hypothesis is that the instruments are exogenous (Hansen 1982)
17.9300
0.0013
0.0044
15.1300
9.4990
0.0498
14.1719
0.0145
0.000
0.1030
0.5365
0.4715
30.3240
9.1560
0.1916
9,742
1,294
1,640
1,789
YES
YES
11,638
13,284
YES
Firm dummies
Observations
15,121
15,121
Observations
YES
YES
Firm dummies
Variables
Table 12 continued
Hyp.
Exp.
(a)
(b)
Variables
Hyp.
Exp.
(c)
(d)
(e)
error of this sum is calculated by applying the formula for a

linear restriction test. With respect to sustainability at the
industry level, the crisis has not completely offset the
negative perception since the conditional marginal effects
(IENV|CRISIS = 1) and (ISOC|CRISIS = 1) are still significantly negative in most specifications. The opposite is
true for corporate sustainability. None of the marginal
effects in Model (2) are significantly negative after the
crisis. For corporate sustainability in the employee
dimension, even a positive effect is measurable, which is in
line with the argument that during a crisis, employees are a
particularly valuable resource that ensures going concern.
The most comprehensive model in this study, represented by Eq. (3), incorporates both the effects of the
financial crisis and the interactions between corporate and
industry sustainability. Tables 11 and 12 contain the results
for the non-instrumented and instrumented specifications.
Note that the coefficients on constitutive terms are not
associated to any of our research hypothesis since they
measure marginal effects conditional on all other variables
being zero.
Before the crisis, the interaction between environmental
performance and preparedness with industry-related environmental risks was indistinguishable from zero. This
changed during the crisis, which can be seen by the negative coefficients of the interaction terms CRISISt 9
IENVit 9 FEPFit, CRISISt 9 IENVit 9 FEPRit, and by the
significantly negative marginal effects of the firmindustry
interactions conditional on CRISIS being one. The same
momentum effect of the crisis is measured for all of the
three social dimensions of corporate sustainability in the
non-instrumented regression, even though the interactions
were also negative before the crisis. In the instrumented
specifications, the coefficients of CRISISt 9 ISOCit 9
FEMPit and CRISISt 9 ISOCit 9 FSUPit are statistically
significant.
The estimates for Model (3) give additional insight into
the relationship between corporate sustainability and firm
value conditional on both the financial crisis and the
industry-inherent sustainability risks. Tables 13 and 14
contain the marginal effects of corporate sustainability on
firm value for each value of CRISIS and the industry sustainability proxies. Additionally, the differences in the
marginal effects after and before the crisis as well as their
standard errors are calculated to draw inferences about the
financial crisis impact.
Panel A of Table 13 shows that before the crisis, only
environmental performance and corporate sustainability in
the employee dimension were perceived negatively when
industry-inherent risks were low. After September 2008,
significances appear for environmental performance and
corporate sustainability in all social dimensions when
industry sustainability is at its extremes (panel B). For high
123
494
Table 13 Conditional marginal effects of corporate sustainability on market value

Variable
CRISIS
ISUS
1
Panel A: Conditional marginal effects of corporate sustainability on market value before the crisis
FEPF
FEPR
0
0
-0.0044
-0.0058
-0.0072*
-0.0086**
-0.0010**
-0.0113**
-0.0127**
(0.0052)
(0.0045)
(0.0039)
(0.0038)
(0.0040)
(0.0046)
(0.0054)
-0.0059
-0.0058
-0.0057
-0.0057
-0.0056
-0.0056
-0.0055
(0.0067)
(0.0056)
(0.0047)
(0.0042)
(0.0042)
(0.0047)
(0.0055)
FEMP
0.0090
0.0036
-0.0019
-0.0074*
-0.0129***
-0.0184***
-0.0239***
FCOM
(0.0055)
-0.0012
(0.0049)
-0.0013
(0.0045)
-0.0014
(0.0042)
-0.0016
(0.0041)
-0.0017
(0.0043)
-0.0018
(0.0047)
-0.0019
(0.0055)
(0.0049)
(0.0047)
(0.0048)
(0.0052)
(0.0059)
(0.0068)
FSUP
0.0037
0.0025
0.0013
0.0001
-0.0012
-0.0024
-0.0036
(0.0068)
(0.0059)
(0.0056)
(0.0062)
(0.0074)
(0.0090)
(0.0107)
-0.0080
-0.0115
Panel B: Conditional marginal effects of corporate sustainability on market value during the crisis
FEPF
0.0091
0.0057
(0.0068)
(0.0057)
(0.0052)
(0.0054)
(0.0064)
(0.0078)
(0.0094)
FEPR
0.0163**
0.0099
0.0036
-0.0027
-0.0090
-0.0153**
-0.0216**
(0.0075)
(0.0061)
(0.0053)
(0.0054)
(0.0062)
(0.0077)
(0.0094)
FEMP
0.0300***
0.0212***
0.0125**
0.0037
-0.0050
-0.0138**
-0.0225***
(0.0060)
(0.0055)
(0.0052)
(0.0052)
(0.0056)
(0.0061)
(0.0069)
FCOM
0.0136**
0.0058
-0.0019
-0.0097
-0.0175**
-0.0252***
-0.0330***
(0.0061)
(0.0058)
(0.0058)
(0.0062)
(0.0070)
(0.0079)
(0.0090)
FSUP
0.0218***
0.0103
-0.0012
-0.0127
-0.02420**
-0.0357***
-0.0472***
(0.0084)
(0.0072)
(0.0071)
Panel C: Differences in the marginal effects from panels A and B
(0.0082)
(0.0101)
(0.0125)
(0.0151)
0.0074*
0.0053
0.0033
0.0012
-0.0046
(1)(0)
0.0135**
(0.0066)
(0.0053)
(0.0045)
(0.0044)
(0.0052)
(0.0066)
(0.0082)
FEPR
(1)(0)
0.0221***
0.0158***
0.0094**
0.0030
-0.0034
-0.0097
-0.0161*
(0.0065)
(0.0052)
(0.0045)
(0.0045)
(0.0053)
(0.0067)
(0.0082)
FEMP
(1)(0)
0.0209***
0.0177***
0.0144***
0.0112**
0.0079
0.0047
0.0014
(0.0052)
(0.0048)
(0.0046)
(0.0046)
(0.0049)
(0.0054)
(0.0061)
0.0148**
0.0072
-0.0005
-0.0082
-0.0158**
-0.0235***
-0.0311***
(0.0057)
(0.0054)
(0.0053)
(0.0056)
(0.0062)
(0.0070)
(0.0080)
0.0180**
0.0078
-0.0025
-0.0128**
-0.0230***
-0.0333***
-0.0436***
(0.0079)
(0.0068)
(0.0064)
(0.0068)
(0.0079)
(0.0094)
(0.0111)
FSUP
(1)(0)
(1)(0)
0.0094**
-0.0012
FEPF
FCOM
0.0115**
0.0022
industry risks, which are represented by low ISUS scores, the

perception of corporate sustainability is positive. For low
industry risks, the perception is negative. The differences in
the marginal effects after and before the crisis are significant
for most of the extreme values of the conditioning variable
ISUS. The instrument variable regression, the results of
which are presented in Table 14, yields similar results.
Although the significances in the social dimensions
are less frequent, the aforementioned effects are highly
significant for the environmental sustainability variables.
123
The results are also visualized in Fig. 2 for the environmental dimensions and Fig. 3 for the social dimensions.
The marginal effects of the corporate sustainability ratings
are represented by the grey lines, whereas the dark lines
show the marginal effect after crisis. The dashed and dotted
lines indicate the 95 % confidence intervals. The dark lines
for perception after the crisis have steeper negative slopes,
which reflect positive perceptions of corporate sustainability when industry risks are high and negative perceptions when industry risks are low. Together with the results
495
Table 14 Conditional marginal effects of corporate sustainability on market value (instrument variable regression)
Variable
CRISIS
ISUS
1
Panel A: Conditional marginal effects of corporate sustainability on market value during the crisis
FEPF
-0.0438
-0.0366
-0.0294
-0.0222
-0.0150
-0.0078
-0.0006
(0.0373)
(0.0351)
(0.0349)
(0.0367)
(0.0402)
(0.0452)
(0.0510)
-0.0154
-0.0132
-0.0109
-0.0086
-0.0063
-0.0040
-0.0017
(0.0407)
(0.0371)
(0.0353)
(0.0356)
(0.0380)
(0.0420)
(0.0473)
0.2748**
0.2417**
0.2086*
0.1755
0.1424
0.1093
0.0762
FCOM
(0.1199)
-0.1013***
(0.1205)
-0.1098***
(0.1216)
-0.1183***
(0.1230)
-0.1268**
(0.1248)
-0.1353**
(0.1270)
-0.1439**
(0.1294)
-0.1524**
FSUP
FEPR
FEMP
0
0
(0.0370)
(0.0405)
(0.0455)
(0.0516)
(0.0585)
(0.0659)
(0.0737)
-0.0241
-0.0148
-0.0054
0.0039
0.0133
0.0226
0.0320
(0.0795)
(0.0760)
(0.0741)
(0.0741)
(0.0757)
(0.0791)
(0.0839)
-0.1092*
-0.1655**
Panel B: Conditional marginal effects of corporate sustainability on market value after the crisis
FEPF
FEPR
FEMP
FCOM
FSUP
0.1731***
0.1166***
0.0602
0.0038
(0.0500)
(0.0410)
(0.0370)
(0.0395)
(0.0474)
(0.0587)
(0.0717)
0.1146**
0.0773*
0.0399
0.0026
-0.0347
-0.0720
-0.1094*
(0.0521)
(0.0454)
(0.0416)
(0.0415)
(0.0452)
(0.0517)
(0.0603)
0.3612***
0.3172***
0.2733**
0.2294**
0.1854*
0.1415
0.0976
(0.1155)
(0.1120)
(0.1094)
(0.1077)
(0.1070)
(0.1072)
(0.1085)
-0.0493
-0.0548
-0.0602
-0.0656
-0.0710
-0.0764
-0.0818
(0.0490)
(0.0485)
(0.0498)
(0.0528)
(0.0571)
(0.0626)
(0.0689)
0.0848
0.0641
0.0434
0.0227
0.0020
-0.0187
-0.0394
(0.0756)
(0.0746)
(0.0770)
(0.0824)
-0.0377*
-0.1013***
-0.1649***
(0.0955)
(0.0865)
(0.0797)
Panel C: Differences in the marginal effects from panels A and B
FEPF
(1)(0)
FEPR
(1)(0)
FEMP
(1)(0)
FCOM
FSUP
(1)(0)
(1)(0)
-0.0527
0.2167***
0.1532***
0.0896***
0.0260*
(0.0349)
(0.0252)
(0.0175)
(0.0151)
(0.0200)
(0.0287)
(0.0388)
0.1300***
0.0904***
0.0508***
0.0112
-0.0284*
-0.0680***
-0.1077***
(0.0276)
(0.0213)
(0.0164)
(0.0144)
(0.0165)
(0.0214)
(0.0278)
0.0863***
0.0755**
0.0647**
0.0539*
0.0430
0.0322
0.0214
(0.0309)
(0.0298)
(0.0297)
(0.0305)
(0.0323)
(0.0348)
(0.0379)
0.0519
0.0550
0.0582
0.0613
0.0644
0.0675
0.0706
(0.0384)
(0.0387)
(0.0399)
(0.0421)
(0.0450)
(0.0485)
(0.0525)
0.1089*
0.0789
0.0488
0.0188
-0.0113
-0.0413
-0.0714*
(0.0647)
(0.0539)
(0.0442)
(0.0364)
(0.0320)
(0.0323)
(0.0373)
from the analysis of Model (3), we find strong support for

Hypothesis 4.
Robustness
Many empirical finance and accounting studies exclude
financials from their samples because these firms capital
structures, accounting rules and business models substantially differ from those in other industries (Foerster and
Sapp 2005). We see no justification for proceeding this way
since in the end every industry is special. In addition,
industry-specific characteristics are eliminated by the fixed
effects estimation if they are constant over time. However,

the financial crisis has had a special effect on the firms in
the financial sectors and we therefore check for the
robustness of our results by dropping 4,638 observations
with a GICS classification starting with 40, which includes
banks, diversified financials, insurance and real estate. The
results reported in the previous section do not substantially
change when financials are excluded. Instead, the significance of some of the parameters that measure the crisisinduced shift in the perception of corporate sustainability
rises. We do, however, acknowledge that our results do not
pass this robustness check with respect to the effect of the
123
496
Fig. 2 Marginal effects of corporate environmental sustainability on

firm value conditional on industry sustainability
123
financial crisis on the capital market perception of industrylevel sustainability. With respect to the crisis-induced shift
in the interaction of firm and industry sustainability, the
test confirms our previously reported results.
The research design in this paper is based on the book
value of assets to mitigate scale effects, which are suspected to cause spurious regression. The literature also
discusses other scale factors as potential deflators, amongst
them the book value of equity and sales (Barth and Kallapur 1996; Barth and Clinch 2009). We check our results
for sensitivity to the choice of these scale factors and find
them to be robust with the only exception being the abovementioned crisis-induced shift in the capital market perception of industry sustainability.
Some empirical studies on the relevance of sustainability for firm valuation regress Tobins Q instead of the
market value of equity on the models explanatory variables, whereas in its simplest form, Tobinss Q is defined
as the quotient of market value of assets and book value of
assets. The market value of assets itself is broken down into
book value of assets plus market value of common stocks
outstanding minus book value of common equity (e.g.
Semenova and Hassel 2008; Guenster et al. 2011). With
some simple algebra, it can be shown that the specifications
that use Tobins Q are equivalent to the basic specifications
in this study if the parameter for book value of equity is
restricted to one and book value of equity is subtracted
from both sides of the regression equation. Our robustness
check for the Tobins Q specification shows that there is no
substantial difference to the results previously reported.
Since the research questions in this paper address how
sustainability is reflected in share prices, they call for
model specifications in price levels. The commonly
employed return specification measures how changes in the
regressors cause changes in the independent variable and
therefore how promptly the information is reflected (Barth
et al. 2001). Although the return specification does not
directly relate to our research questions, we check the
results for sensitivity to the choice of a return specification,
in which the dependent variable is the half-year stock
return R and the regressors are the changes in sustainability
proxies and control variables. The results indicate that the
return specification coefficient estimates are in line with
our results from the levels regressions.
Another robustness check refers to the correction of
statistical outliers as described in the Reference Model
and Removing Statistical Outliers section. Removing
outliers before including the sustainability proxies is necessary to obtain economically reasonable coefficient estimates for the reference model. However, this causes a
sample reduction that may affect the outcome of the
regression estimation. To prevent our results from being
criticized due to this approach, we also check them for
497
Fig. 3 Marginal effects of

corporate social sustainability
on firm value conditional on
industry sustainability
123
498
robustness to abstaining from outlier correction and find

that keeping outliers in the sample does not substantially
change the results, but in fact confirms them with respect to
many of the corporate sustainability dimensions.
The last robustness check applied to the results of this
study addresses the problem of multicollinearity of the
explanatory variables. Model specifications (a)(e) estimate the effect of sustainability on the market value for
each GES variable separately. However, the benefit of
avoiding inflation of standard errors comes at the cost of a
potential omitted variable bias in each of the regressions, in
which the omitted variables are the sustainability proxies
included in the other specifications. Therefore, we also
estimate a model that includes all sustainability proxies. As
previously expected and with few exceptions, severe
multicollinearity prevents us from producing significant
estimates for the coefficients on the sustainability proxies.
Tabulated outputs of all robustness checks are available
from the authors upon request.
Relating the Results to Semenova and Hassel (2008)
The results of this paper strongly contradict the findings of
Semenova and Hassel (2008), who measure a significantly
positive relationship between lower industry environmental
risks and market valuation and between higher corporate
environmental sustainability and market valuation for the
period 20022006, well before the financial crisis. Their
results warrant special attention since they use the same
GES ratings, their sample consists of U.S. firms, which also
account for a large part of our sample, and they apply a
similar valuation model with a Tobins Q specification.
Semenova and Hassel (2008) use a pooled OLS approach
and correct the standard errors for intra-firm correlation.
This implies that they do not control for firm fixed effects,
so they potentially expose their results to a severe omitted
variable bias. A prime candidate for an omitted variable that
is highly correlated with sustainability proxies is general
corporate governance. For the cross sections at the end of
2008 and mid-year 2010, GES provides additional ratings
on corporate governance. We find these ratings to be highly
correlated with sustainability ratings. This, together with
the fact that we obtain results that are very similar to those
of Semenova and Hassel (2008) when we use pooled OLS,
supports our suspicion that the authors measure the effect of
corporate governance or other omitted variables on market
valuation rather than that of environmental sustainability.
Conclusions
By using a sample of MSCI World firms that are evaluated
by the international rating agency GES in the period
123
December 2003June 2011, this study provides evidence of

a shift in the capital markets perception of industry and
corporate sustainability during the financial crisis. We find
that since Lehman Brothers Chapter 11 filing in September 2008, the capital markets attitudes towards corporate
sustainability have shifted in a positive direction. In other
words, this crisis not only triggered the Occupy Wall Street
movement but also led to a movement in the capital market
rewarding corporate sustainability. Our study also shows
that this shift has led to a negative perception of the
interaction between sustainability at the industry and the
firm level. In industries with higher environmental and
social risks, corporate sustainability is more important and
acts as a compensating management strategy.
There are various theoretical explanations for our findings. The financial crisis may have served as a triggering
event that accelerated a larger trend towards recognizing
the benefits of sustainability from a shareholder perspective. The literature has controversially discussed the
potential benefits and costs of corporate sustainability for
years, and the increasing tendency for management to
invest in these activities leads us to assume that executives
believe in the economic benefits of corporate sustainability.
From the perspective of institutional theory, maintaining
corporate sustainability at the same level or even raising it
in times of macroeconomic crisis can be regarded as a
signal that a firm is less negatively affected in terms of
financial constraints than others or even benefits from the
change in the institutional settings. These changes include
stricter regulation, a shift in customer preferences towards
sustainable products and services and in general a more
competitive environment in which reputation is a much
more valuable resource than ever.
Our results show that sustainability is relevant to firm
valuation and hence that some managers who have not
recognized the described change in perception do not follow a value-maximizing strategy when they are reluctant to
enhance the level of corporate sustainability, particularly in
industries that are exposed to high environmental and
social risks, such as energy, materials and utilities.
Therefore, our study also has a practical implication in that
executives in these industries after the changes in the
institutional setting triggered by the financial crisis should
enhance their firms commitment to corporate sustainability in order to increase shareholder value. This leads to the
research question whether there is an optimal level of
corporate sustainability and what its determinants are. In
this study, we choose models with linear relationships
between corporate sustainability and market value. This
linear relation is not expected to hold in extreme domains
when increasing marginal sustainability costs and
decreasing marginal benefits are assumed. The next step is
to build a model that allows for non-linearities in the
perception of sustainability and connects the optimum

values to factors such as industry exposure to sustainability
risks, firm size, product market competition and country of
origin. The greatest challenge, however, is not constructing
such a model, but interpreting its multidimensional results.
Multidimensionality must be also considered the most
important limitation of this article. In our empirical analysis, we find that both the perception of corporate sustainability in environmental performance and several social
dimensions have been positively affected by the financial
crisis. A very valuable comment by one of the anonymous
reviewers was the concern that the environmental debate
has been highly topical for well over a decade and not just
since the outbreak of the financial crisis. We agree and
have to acknowledge that our study, although it analyses
the value relevance of sustainability in five different firmlevel dimensions, is not fully able to disentangle the effects
on the market value of firms due to their strong correlations. For instance, the correlation between environmental
performance and corporate sustainability in the employee
dimension is 0.65 (see Table 4), implying that when analyzing one dimension, some effects of the other dimension
always influences the results to some extent. Thus, we
cannot in fact rule out that the results are driven exclusively by corporate sustainability in one of the dimensions,
a task that will have to be left to further research.
Acknowledgements We gratefully acknowledge that GES provided
the data free of charge and assisted us in understanding their methodology whenever such assistance was necessary.
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J Bus Ethics (2014) 122:475500

The World Capital Markets Perception of Sustainability

K. Lopatta T. Kaspereit (&)

generalized method of moments (GMM) approach and using

Theoretical Background and Hypotheses Development

link between corporate sustainability and the market value

generalized method of moments (GMM) approach and using

Theoretical Background and Hypotheses Development

link between corporate sustainability and the market value

The World Capital Markets Perception

relevant to cross-sectional and intertemporal variance in

the negative impact of the financial crisis. This suggestion

Brammer et al. (2012, p. 6) aptly state, whilst before the

The World Capital Markets Perception

Hypothesis 3 The financial crisis affected the capital

Results of Prior Empirical Research

Data and Methodology

Food, beverage & tobacco

Technology hardware & equipment

Consumer durables & apparel

Software & services

Pharmaceuticals, biotech & life sciences

Automobiles & components

Commercial & professional services

Food & staples retailing

Household & personal products

The GES rating assesses both environmental and social

The World Capital Markets Perception

environmental management system, screening of suppliers

sales growth (SG), country and currency codes, and

Table 2 Overview of GES rating variables

A measure of 21 indicators that measure current success in environmental issues

Industry social risk

Firm employee rating

Firm community rating

Firm supplier rating

Table 3 Overview of accounting, market and instrumental variables

terms of its book value of equity, net income, the loss

Panel A: Descriptive statistics

Panel B: Correlation matrix

Panel A: Descriptive statistics

Table 4 Descriptive statistics and correlation matrix for model variables

The World Capital Markets Perception

All financial variables are scaled by total assets

the third step) or a Cooks measure of distance greater than

Table 5 Regression of market value on controls before and after

Panel B: Correlation matrix

Standard errors displayed in parentheses. Asterisks indicate statistical

The World Capital Markets Perception

Since the correlation matrix in Table 4 and variance

If, as stated by Hypothesis 3, the financial crisis brought

MVit b0 b1 ISUSit b2 CRISISt ISUSit b3 FSUSit

captures this effect when CRISIS is one (Dawson and

instruments from overcoming endogeneity. Whether an

Tables 7 and 8 show the regression results for Model (1).

The World Capital Markets Perception

Table 7 Regression results for Model (1)

environmental performance and corporate sustainability in

estimates for the perception of corporate sustainability

Table 8 Instrument variable regression results for Model (1)

The coefficients estimated in Model (2) measure the

sustainability on shareholder value after September 2008,

Table 9 Regression results for Model (2)