Market efficiency of traditional stock market indices and social responsible indices: the role of sustainability reporting

  • Received April 5, 2017;
    Accepted April 25, 2017;
    Published June 2, 2017
  • Author(s)
    Henry Mynhardt ,
    Inna Makarenko
    ORCID Researcher ID ,
    E-mail:
    Alex Plastun
    ORCID Researcher ID
  • DOI
    http://dx.doi.org/10.21511/imfi.14(2).2017.09
  • Article Info
    Volume 14 2017, Issue #2, pp. 94-106
  • TO CITE АНОТАЦІЯ
  • Cited by
    23 articles
  • 1454 Views
  • 596 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Corporate social responsibility, disclosed in sustainability reporting, influences the financial performance of companies. As a result, traditional stock market indices (TI) are expanded with the social responsible stock market indices (SRI). The aim of this study was to establish whether there are any differences in the behavior of the TI and SRI. To do this, the authors analyzed their efficiency. They used R/S analysis to calculate the Hurst exponent as a measure of persistence (long-term memory property). The presence of persistence was evidence in favor of less efficiency. According to empirical results, SRI has lower efficiency, in particular the Dow Jones Sustainability Index. Lower efficiency was also observed in the emerging markets with a responsible investment segment, compared to the traditional stock market indices. Further standardization and a common methodological approach to corporate sustainability reporting disclosure are proposed.

view full abstract hide full abstract
    • Table 1. Indices of sustainable development and the corresponding financial indices studied by the authors
    • Table 2. Overall results of the Hurst exponent calculations for the Dow Jones Sustainability Indices and traditional Dow Jones Industrial Index
    • Table 3. Overall results of the Hurst exponent calculations for the S&P500 Environmental & Socially Responsible Index and traditional S&P500 Index
    • Table 4. Overall results of the Hurst exponent calculations for the FTSE4Good Global Index and traditional FTSE 100 Index
    • Table 5. Overall results of the Hurst exponent calculations for the MSCI ESG Indices, NASDAQ OMX CRD Global Sustainability Index and their traditional analogues (MSCI Index and NASDAQ Composite Index)
    • Table 6. Behavior of sustainability and traditional indices during pre-crisis, crisis and post-crisis periods: case of global financial crisis
    • Albaity, M., & Ahmad, R. (2011). Return performance and leverage effect in Islamic and socially responsible stock indices evi¬dence from Dow Jones (DJ) and Financial Times Stock Exchange (FTSE). African Journal of Business Management, 5(16), 6927-6939.
    • Ameur, H. B., & Senanedsch, J. (2014). Socially responsible invest¬ments: An international empirical study of time-varying risk premiums. Journal of Applied Business Research, 30(5), 1513-1523.
    • Belghitar, Y., Ephraim, C., & Nitin, D. (2014). Does it pay to be ethical? Evidence from the FTSE4Good. Journal of Banking and Finance, 47(C), 54-62.
    • Cajueiro, D., & Tabak, B. (2005). Ranking efficiency for emerging equity markets II. Chaos Solitons Fractals, 23, 671-675.
    • Caporale, G. M., Gil-Alana, L., Plastun, A., & Makarenko, I. (2016). Long memory in the Ukrainian stock market and financial crises. Journal of Economics and Finance, 40(2), 235-257.
    • Cheung, Y., & Lai, K. (1993). Do gold market returns have long-range dependence? The Financial Review, 28(2), 181-202.
    • Cheung, Y. W., Lai, K. S. (1995). A search for long-range dependence in international stock market returns. Journal of International Money and Finance, 14(4), 597-615.
    • Collison, D., Cobb, G., Power, D., & Stevenson, L. (2009). FTSE4Good: Exploring its implications for corporate conduct. Accounting, Auditing & Accountability Journal, 22(1), 35-58.
    • Corazza, M., & Malliaris, A. (2002). Multifractality in foreign currency markets. Multinational Finance Journal, 6, 387-401.
    • Cortez, M., Silva, F., & Areal, N. (2009). Socially responsible investing in the global market: The performance of US and European funds.
    • Costa, R. L., Vasconcelos, G. L. (2003). Long-range correlations and nonstationarity in the Brazilian stock market. Physica A, 329, 231-248.
    • Di Bartolomeo, D., & Kurtz, L. (2012). The long-term performance of a social investment universe. The Journal of Investing, 20(3), 95-102.
    • Friedman, M. (1970, September 13). The social responsibility of business is to increase its profits. New York Times Magazine, 32-33.
    • Glenn, L. A. (2007). On randomness and the NASDAQ composite. Working paper.
    • Global Reporting Initiative. (2011). Sustainability reporting guidelines.
    • Gray, R. (2006). Does sustainability reporting improve corporate behaviour? Wrong question? Right time? Accounting and Business Research, 36, Suppl. 1, 65-88.
    • Grech, D., & Pamula, G. (2008). The local Hurst exponent of the financial time series in the vicinity of crashes on the Polish stock exchange market. Physica A, 387(16/17), 4299-4308.
    • Greene, M. T., & Fielitz, B. D. (1977). Long-term dependence in common stock returns. Journal of Financial Economy, 4, 339-349.
    • Hayati, K., Sedaghat P. (2016). An evaluation of the links between quality of reporting and efficiency of investment in companies listed at Tehran Stock Exchange. Problems and Perspectives in Management, 14(2(spec. issue)), 341-347.
    • Hoti, S., McAleer, M., & Pauwels, L. L. (2008). Multivariate volatility in environmental finance. Mathematics and Computers in Simulation, 78(2), 189-199.
    • Jacobsen, B. (1995). Are stock returns long-term dependent? Some empirical evidence. Journal of International Financial Markets. Institutions and Money, 5(2/3), 37-52.
    • KPMG. (2011). The KPMG Survey of Corporate Responsibility Reporting 2011.
    • KPMG. (2013). The KPMG Survey of Corporate Responsibility Reporting 2013.
    • KPMG. (2015). Survey of Corporate Responsibility Reporting 2015.
    • Lapinskiene, G. (2011). Sustainable enterprises: Responses of market values. Business Systems and Economics, 1(1), 71-83.
    • Lo, A. W. (1991). Long-term memory in stock market prices. Econometrica, 59, 1279-1313.
    • Lopez, M. V., Garcia, A., & Rodriguez, L. (2007). Sustainable development and corporate performance: A study based on the Dow Jones Sustainability Index. Journal of Business Ethics, 75(3), 285-300.
    • Los, C. (2003). Financial market risk: Measurement and analysis. Routledge International Studies in Money and Banking, Vol. 24. London: Taylor and Francis.
    • Los, C., Yalamova, R. M. (2006) Multi-Fractal Spectral Analysis of the 1987 Stock Market Crash. International Research Journal of Finance and Economics, 1(4), 106-133.
    • Managi, S., Okimoto, T., & Matsuda, A. (2012). Do socially responsible investment indexes outperform conventional indexes? Applied Financial Economics, 22(18), 1511-1527.
    • Mandelbrot, B. (1972). Statistical methodology for nonperiodic cycles: From the covariance to R/S analysis. Annals of Economic and Social Measurement, 1, 259-290.
    • Murray, A., Sinclair, C. D., Power, D., & Gray, R. (2006). Do financial markets care about social and environmental disclosure? Further evidence and exploration from the UK. Accounting, Auditing and Accountability Journal, 19(2), 228-255.
    • Mynhardt, R. H., Plastun, A., & Makarenko, I. (2014). Behavior of financial markets efficiency during the financial market crisis: 2007–2009. Corporate Ownership and Control, 11(2), 473-488.
    • OECD. (2014). The Evolution of Corporate Reporting for Integrated Performance.
    • Onali, E., & Goddard, J. (2011). Are European equity markets efficient? New evidence from fractal analysis. International Review of Financial Analysis, 20(2), 59-67.
    • Opler, T. C., & Sokobin, J. (1995). Does coordinated institutional activism work. Dice Center For Research In Financial Economics, Working Papers Series 95-5.
    • Peters, E. E. (1991). Chaos and order in the capital markets: A new view of cycles, prices, and market volatility. New York, NY: Wiley.
    • Peters, E. E. (1994). Fractal market analysis: Applying chaos theory to investment and economics. New York, NY: Wiley.
    • Schröder, M. (2007). Is there a difference? The performance characteristics of SRI equity indices. Journal of Business Finance and Accounting, 34(1/2), 331-348.
    • Smit, A. M., Zyl, J. (2016) Investigating the extent of sustainability reporting in the banking industry. Banks and Bank Systems, 11(4), 71-81.
    • Statman, M. (2000, May/June). Socially responsible mutual funds. Financial Analysts Journal, 30-39.
    • Statman, M., & Glushkov, D. (2008). The wages of social responsibility. Santa Clara University.
    • Velte, P. (2016) Sustainable management compensation and ESG performance – the German case. Problems and Perspectives in Management, 14(4), 17-24.
Related Articles

  • The role of accounting in sustainable development

    Inna MakarenkoORCID Researcher ID, Alex PlastunORCID Researcher ID doi: http://dx.doi.org/10.21511/afc.01(2).2017.01
    Accounting and Financial Control Volume 1, 2017         Issue #2         pp. 4-12 Views: 5669 Downloads: 4305 TO CITE

    Ideology of Sustainable Development and Sustainable Development Goals influence the transformation of business processes in the companies. Professional accountants are important part of this transformation. In this paper the role of accounting in Sustainable Development Goals achievement is discussed. Different approaches to structuring the role of professional accountants in Sustainable Development are investigated. Among them are types of roles that perform accountants, their professional functions, skills and competencies in the corporate environment. As the result a holistic vision of the role of accounting in sustainable development in the new economic conditions is provided.

  • The relationship between corporate social responsibility and earnings management: accounting for endogeneity

    Hyunjung Choi , Byungchul ChoiORCID , Jungyoon ByunORCID doi: http://dx.doi.org/10.21511/imfi.15(4).2018.06
    Investment Management and Financial Innovations Volume 15, 2018         Issue #4         pp. 69-84 Views: 4330 Downloads: 493 TO CITE АНОТАЦІЯ

    This study examines the relationship between corporate social responsibility (CSR) and earnings management after controlling for endogeneity of CSR. Using a sample of non-financial firms listed on Korean Securities Market between 2002 and 2010, this study finds that ignoring endogeneity biases the estimated relation between CSR and earnings management. Specifically, the results show that the negative and significant relation between CSR commitment and discretionary accruals reported in the previous studies becomes insignificant. However, the negative and significant relation between CSR commitment and real activities manipulation remains significant even when the endogeneity of CSR commitment is taken into account. Therefore, this study provides evidence that proactive CSR engagement significantly affects firm’s practice of real activities manipulation, while it does not affect its practice of discretionary accruals. These results indicate that CSR commitment leads managers to be more responsible in management of operational activities than in accruals management.

  • Does board composition have an impact on CSR reporting?

    Patrick VelteORCID Researcher ID doi: http://dx.doi.org/10.21511/ppm.15(2).2017.02
    Problems and Perspectives in Management Volume 15, 2017         Issue #2         pp. 19-35 Views: 4181 Downloads: 1609 TO CITE АНОТАЦІЯ

    Corporate social responsibility (CSR) reporting plays a key role in management control, particularly in light of the increased demand for non-financial reporting after the financial crisis of 2008–2009. This literature review evaluates 47 empirical studies that concentrate on the influence of several board composition variables on the quantity and quality of CSR reporting. The author briefly introduces the research framework that underpins current empirical studies in this field. This is followed by a discussion of the main variables of board composition: (1) committees (audit and CSR committees), (2) board independence, (3) board expertise, (4) CEO duality, (5) board diversity (gender and foreign diversity), (6) board activity, and (7) board size. The author, then, summarizes the key findings, discusses the limitations of the existing research and offers useful recommendations for researchers, firm practice and regulators.

Download Preview
Close
Investment Management and Financial Innovations
Investment Management and Financial Innovations