Examining the Impact of Environmental, Social and Governance Scores on Financial Performance of Listed Companies on the German Stock Exchange (XETRA)

Jacob Azaare; Zhao Wu; Socrates Kwadwo Modzi; Ping Li; Enock Mintah Ampaw

doi:doi:10.11648/j.sjbm.20231102.12

| Peer-Reviewed

Examining the Impact of Environmental, Social and Governance Scores on Financial Performance of Listed Companies on the German Stock Exchange (XETRA)

Jacob Azaare, Zhao Wu, Socrates Kwadwo Modzi, Ping Li, Enock Mintah Ampaw

Published in Science Journal of Business and Management (Volume 11, Issue 2)

Received: 9 March 2023 Accepted: 28 March 2023 Published: 18 April 2023

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Abstract

As investors' knowledge on sustainability concerns rises, the concept and interest of sustainable investment continue to expand and become increasingly attractive as the global financial market is considered an effective and powerful tool in the process of developing sustainable economies. Although sustainability is not a new concept in the financial market, its recent recognition and wider adoption has increased as consumers, investors, businesses, and world leaders have become more sensitive and concerned about the future of the planet. Hence, this paper re-examines the impact of environmental, social, and governance (ESG) scores on the financial performance of the listed companies on the German Stock Exchange from 2011 to 2021. With a total of 450 listed firms and 4,950 observations sourced from the Refinitiv database, vector autoregressive (PVAR) together with the system-generalized method of moments (system-GMM) and robust panel multiple regression models were employed to examine the impact and causal relationship between ESG scores and corporate financial performance. The results suggest that ESG scores contribute to organizations' financial performance. We found that better ESG ratings increase companies' systematic risk (volatility), which could boost or increase their stocks' returns. The study however did not find Granger causality between ESG scores and the accounting-based financial performance (ROA), but it did for the market-based financial performance (Tobin’s Q). It showed that ESG scores negatively Granger cause firms’ financial performance. In a nutshell, organizations' financial performance may be improved by having a higher ESG score and performing better in the social dimension. Overall, the evidence supports the idea that a business case exists for sustainability and corporate social responsibility.

Published in	Science Journal of Business and Management (Volume 11, Issue 2)
DOI	10.11648/j.sjbm.20231102.12
Page(s)	74-92
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Environmental Social and Governance Scores, Corporate Financial Performance, Return on Assets, Tobin’s Q, System-Generalized Method of Moments, Firm Systematic Risk

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Jacob Azaare, Zhao Wu, Socrates Kwadwo Modzi, Ping Li, Enock Mintah Ampaw. (2023). Examining the Impact of Environmental, Social and Governance Scores on Financial Performance of Listed Companies on the German Stock Exchange (XETRA). Science Journal of Business and Management, 11(2), 74-92. https://doi.org/10.11648/j.sjbm.20231102.12

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ACS Style

Jacob Azaare; Zhao Wu; Socrates Kwadwo Modzi; Ping Li; Enock Mintah Ampaw. Examining the Impact of Environmental, Social and Governance Scores on Financial Performance of Listed Companies on the German Stock Exchange (XETRA). Sci. J. Bus. Manag. 2023, 11(2), 74-92. doi: 10.11648/j.sjbm.20231102.12

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AMA Style

Jacob Azaare, Zhao Wu, Socrates Kwadwo Modzi, Ping Li, Enock Mintah Ampaw. Examining the Impact of Environmental, Social and Governance Scores on Financial Performance of Listed Companies on the German Stock Exchange (XETRA). Sci J Bus Manag. 2023;11(2):74-92. doi: 10.11648/j.sjbm.20231102.12

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@article{10.11648/j.sjbm.20231102.12,
  author = {Jacob Azaare and Zhao Wu and Socrates Kwadwo Modzi and Ping Li and Enock Mintah Ampaw},
  title = {Examining the Impact of Environmental, Social and Governance Scores on Financial Performance of Listed Companies on the German Stock Exchange (XETRA)},
  journal = {Science Journal of Business and Management},
  volume = {11},
  number = {2},
  pages = {74-92},
  doi = {10.11648/j.sjbm.20231102.12},
  url = {https://doi.org/10.11648/j.sjbm.20231102.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.sjbm.20231102.12},
  abstract = {As investors' knowledge on sustainability concerns rises, the concept and interest of sustainable investment continue to expand and become increasingly attractive as the global financial market is considered an effective and powerful tool in the process of developing sustainable economies. Although sustainability is not a new concept in the financial market, its recent recognition and wider adoption has increased as consumers, investors, businesses, and world leaders have become more sensitive and concerned about the future of the planet. Hence, this paper re-examines the impact of environmental, social, and governance (ESG) scores on the financial performance of the listed companies on the German Stock Exchange from 2011 to 2021. With a total of 450 listed firms and 4,950 observations sourced from the Refinitiv database, vector autoregressive (PVAR) together with the system-generalized method of moments (system-GMM) and robust panel multiple regression models were employed to examine the impact and causal relationship between ESG scores and corporate financial performance. The results suggest that ESG scores contribute to organizations' financial performance. We found that better ESG ratings increase companies' systematic risk (volatility), which could boost or increase their stocks' returns. The study however did not find Granger causality between ESG scores and the accounting-based financial performance (ROA), but it did for the market-based financial performance (Tobin’s Q). It showed that ESG scores negatively Granger cause firms’ financial performance. In a nutshell, organizations' financial performance may be improved by having a higher ESG score and performing better in the social dimension. Overall, the evidence supports the idea that a business case exists for sustainability and corporate social responsibility.},
 year = {2023}
}

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TY  - JOUR
T1  - Examining the Impact of Environmental, Social and Governance Scores on Financial Performance of Listed Companies on the German Stock Exchange (XETRA)
AU  - Jacob Azaare
AU  - Zhao Wu
AU  - Socrates Kwadwo Modzi
AU  - Ping Li
AU  - Enock Mintah Ampaw
Y1  - 2023/04/18
PY  - 2023
N1  - https://doi.org/10.11648/j.sjbm.20231102.12
DO  - 10.11648/j.sjbm.20231102.12
T2  - Science Journal of Business and Management
JF  - Science Journal of Business and Management
JO  - Science Journal of Business and Management
SP  - 74
EP  - 92
PB  - Science Publishing Group
SN  - 2331-0634
UR  - https://doi.org/10.11648/j.sjbm.20231102.12
AB  - As investors' knowledge on sustainability concerns rises, the concept and interest of sustainable investment continue to expand and become increasingly attractive as the global financial market is considered an effective and powerful tool in the process of developing sustainable economies. Although sustainability is not a new concept in the financial market, its recent recognition and wider adoption has increased as consumers, investors, businesses, and world leaders have become more sensitive and concerned about the future of the planet. Hence, this paper re-examines the impact of environmental, social, and governance (ESG) scores on the financial performance of the listed companies on the German Stock Exchange from 2011 to 2021. With a total of 450 listed firms and 4,950 observations sourced from the Refinitiv database, vector autoregressive (PVAR) together with the system-generalized method of moments (system-GMM) and robust panel multiple regression models were employed to examine the impact and causal relationship between ESG scores and corporate financial performance. The results suggest that ESG scores contribute to organizations' financial performance. We found that better ESG ratings increase companies' systematic risk (volatility), which could boost or increase their stocks' returns. The study however did not find Granger causality between ESG scores and the accounting-based financial performance (ROA), but it did for the market-based financial performance (Tobin’s Q). It showed that ESG scores negatively Granger cause firms’ financial performance. In a nutshell, organizations' financial performance may be improved by having a higher ESG score and performing better in the social dimension. Overall, the evidence supports the idea that a business case exists for sustainability and corporate social responsibility.
VL  - 11
IS  - 2
ER  -

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Author Information

Jacob Azaare

Department of Business Computing, CK Tedam University of Technology and Applied Sciences, Navrongo-Upper East, Ghana
Zhao Wu

School of Management and Economics, University of Electronic Science and Technology of China, Chengdu, China
Socrates Kwadwo Modzi

Faculty of Business, Economics and Social-Sciences, University of Hamburg, Hamburg, Germany
Ping Li

School of Mathematics, Southwest Minzu University, Chengdu, China
Enock Mintah Ampaw

Applied Mathematics Department, Faculty of Applied Science and Technology, Koforidua Technical University, Koforidua, Ghana

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Plain Text BibTeX RIS

APA Style

Jacob Azaare, Zhao Wu, Socrates Kwadwo Modzi, Ping Li, Enock Mintah Ampaw. (2023). Examining the Impact of Environmental, Social and Governance Scores on Financial Performance of Listed Companies on the German Stock Exchange (XETRA). Science Journal of Business and Management, 11(2), 74-92. https://doi.org/10.11648/j.sjbm.20231102.12

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ACS Style

Jacob Azaare; Zhao Wu; Socrates Kwadwo Modzi; Ping Li; Enock Mintah Ampaw. Examining the Impact of Environmental, Social and Governance Scores on Financial Performance of Listed Companies on the German Stock Exchange (XETRA). Sci. J. Bus. Manag. 2023, 11(2), 74-92. doi: 10.11648/j.sjbm.20231102.12

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AMA Style

Jacob Azaare, Zhao Wu, Socrates Kwadwo Modzi, Ping Li, Enock Mintah Ampaw. Examining the Impact of Environmental, Social and Governance Scores on Financial Performance of Listed Companies on the German Stock Exchange (XETRA). Sci J Bus Manag. 2023;11(2):74-92. doi: 10.11648/j.sjbm.20231102.12

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@article{10.11648/j.sjbm.20231102.12,
  author = {Jacob Azaare and Zhao Wu and Socrates Kwadwo Modzi and Ping Li and Enock Mintah Ampaw},
  title = {Examining the Impact of Environmental, Social and Governance Scores on Financial Performance of Listed Companies on the German Stock Exchange (XETRA)},
  journal = {Science Journal of Business and Management},
  volume = {11},
  number = {2},
  pages = {74-92},
  doi = {10.11648/j.sjbm.20231102.12},
  url = {https://doi.org/10.11648/j.sjbm.20231102.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.sjbm.20231102.12},
  abstract = {As investors' knowledge on sustainability concerns rises, the concept and interest of sustainable investment continue to expand and become increasingly attractive as the global financial market is considered an effective and powerful tool in the process of developing sustainable economies. Although sustainability is not a new concept in the financial market, its recent recognition and wider adoption has increased as consumers, investors, businesses, and world leaders have become more sensitive and concerned about the future of the planet. Hence, this paper re-examines the impact of environmental, social, and governance (ESG) scores on the financial performance of the listed companies on the German Stock Exchange from 2011 to 2021. With a total of 450 listed firms and 4,950 observations sourced from the Refinitiv database, vector autoregressive (PVAR) together with the system-generalized method of moments (system-GMM) and robust panel multiple regression models were employed to examine the impact and causal relationship between ESG scores and corporate financial performance. The results suggest that ESG scores contribute to organizations' financial performance. We found that better ESG ratings increase companies' systematic risk (volatility), which could boost or increase their stocks' returns. The study however did not find Granger causality between ESG scores and the accounting-based financial performance (ROA), but it did for the market-based financial performance (Tobin’s Q). It showed that ESG scores negatively Granger cause firms’ financial performance. In a nutshell, organizations' financial performance may be improved by having a higher ESG score and performing better in the social dimension. Overall, the evidence supports the idea that a business case exists for sustainability and corporate social responsibility.},
 year = {2023}
}

Copy | Download

TY  - JOUR
T1  - Examining the Impact of Environmental, Social and Governance Scores on Financial Performance of Listed Companies on the German Stock Exchange (XETRA)
AU  - Jacob Azaare
AU  - Zhao Wu
AU  - Socrates Kwadwo Modzi
AU  - Ping Li
AU  - Enock Mintah Ampaw
Y1  - 2023/04/18
PY  - 2023
N1  - https://doi.org/10.11648/j.sjbm.20231102.12
DO  - 10.11648/j.sjbm.20231102.12
T2  - Science Journal of Business and Management
JF  - Science Journal of Business and Management
JO  - Science Journal of Business and Management
SP  - 74
EP  - 92
PB  - Science Publishing Group
SN  - 2331-0634
UR  - https://doi.org/10.11648/j.sjbm.20231102.12
AB  - As investors' knowledge on sustainability concerns rises, the concept and interest of sustainable investment continue to expand and become increasingly attractive as the global financial market is considered an effective and powerful tool in the process of developing sustainable economies. Although sustainability is not a new concept in the financial market, its recent recognition and wider adoption has increased as consumers, investors, businesses, and world leaders have become more sensitive and concerned about the future of the planet. Hence, this paper re-examines the impact of environmental, social, and governance (ESG) scores on the financial performance of the listed companies on the German Stock Exchange from 2011 to 2021. With a total of 450 listed firms and 4,950 observations sourced from the Refinitiv database, vector autoregressive (PVAR) together with the system-generalized method of moments (system-GMM) and robust panel multiple regression models were employed to examine the impact and causal relationship between ESG scores and corporate financial performance. The results suggest that ESG scores contribute to organizations' financial performance. We found that better ESG ratings increase companies' systematic risk (volatility), which could boost or increase their stocks' returns. The study however did not find Granger causality between ESG scores and the accounting-based financial performance (ROA), but it did for the market-based financial performance (Tobin’s Q). It showed that ESG scores negatively Granger cause firms’ financial performance. In a nutshell, organizations' financial performance may be improved by having a higher ESG score and performing better in the social dimension. Overall, the evidence supports the idea that a business case exists for sustainability and corporate social responsibility.
VL  - 11
IS  - 2
ER  -

Copy | Download