Recognizing corporate citizenship: market reactions

Abstract

This research addresses whether corporations take on environmental, social and governance (ESG) integration at shareholders’ expense or whether ESG integration is a mechanism to increase shareholder value. It therefore investigates stock market reactions to recognition of good (or bad) corporate citizens using additions to (removals from) the Jantzi Social Index as a signal of good (bad) corporate citizenship. The Jantzi Index is a 60-security market index for which inclusion is based on ESG-related criteria. The study measures stock return dynamics around the announcement date of stock additions to/removals from the index. Accordingly, the findings are supportive of the view that ESG integration is a value-enhancing activity for shareholders and that the market therefore acknowledges socially responsible corporate citizens in a favourable way. It is worth noting that these findings are situated in the context of well-established capital markets comprising generally well-informed investors and are robust to alternative models of stock return-generating functions.