Abstract
Corporate sustainability rating is frequently observed by different stakeholders, thereby finding interest in academic studies as well. Shareholders of sustainable-companies respond to different types of stock market news, be it financial or non-financial news. Announcements relating to ratings obtained by sustainability-compliant businesses appear to create anticipation in the mind of the investor. If these announcements are viewed by investors with interest, then it can have a greater implication for corporate governance and control and the corporate leaders can find a clear path to resolve the much debated “shareholder” versus “stakeholder” view in decision-making. This paper aims to explain whether or not the declaration of sustainability ratings contributes to the stock market reaction in emerging markets such as India. Short-run event analysis was carried out on a set of selected BSE listed companies following sustainable practice (2017-2019) and the entire data set was split into categories of the upgrade, downgrade, no change, and no ratings. The study results show that the announcement of sustainability ratings is not regarded by investors with a great deal of interest and there is inherent indifference to such news in the stock market. These findings are relevant for stock exchanges, investors, and corporate control as it raises a serious issue of rethinking stakeholder awareness levels, which in an emerging economy such as India currently seem to be in a nascent stage. In order to meet the stakeholders interested in the process of business becoming sustainable corporate leaders through proper governance should explore ways and means to approach sustainability in a more systematic way
Highlights
As reported in the Annual Impact Investor Survey conducted by Global Impact Investing Network (GIIN) in June 2020, the current market size for sustainable investment is USD 715 billion
This paper aims to explain whether or not the declaration of sustainability ratings contributes to the stock market reaction in emerging markets such as India
He argues that managers should not engage in corporate social responsibility (CSR) activities; when tax and other laws are developed, it should be left to the government to implement them
Summary
As reported in the Annual Impact Investor Survey conducted by Global Impact Investing Network (GIIN) in June 2020, the current market size for sustainable investment is USD 715 billion. There are several schools of thought to build this debacle viz., “shareholder theory” versus the “stakeholder view”. Agents should function in the best interest of their principal, that is to say, the shareholders He argues that managers should not engage in CSR activities; when tax and other laws are developed, it should be left to the government to implement them. As per this theory, the ultimate aim of the companies is to enhance the shareholders’ wealth and all financial decisions would only have such strategy in mind (Danielson, Heck, & Shaffer, 2008). The shareholder principle emphasises the maximisation of short-term profits, while respecting some degree of abuse by stakeholders (Danielson et al, 2008)
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