Do stock investors value corporate sustainability? Evidence from Asia Pacific stock markets

Abstract

This paper analyzes the impacts of index additions and deletions on sustainable firms by studying a sample of Asia Pacific company stocks that are added to or deleted from the Dow Jones Sustainability World Index over the period 2002- 2008. The impacts are measured in terms of stock return, risk and liquidity. We find evidence that announcement per se has asymmetric impacts on stock return. In particular, index deletion stocks experience significant negative (but temporary) impact but index addition stocks feel little impact. Index addition stocks show significant (but transient) decline in stock returns on the day of change while index deletion stocks do not. Trading volume generally improves after the announcement day, albeit a temporary one though. Systematic risk shows little change while idiosyncratic risk generally increases significantly after the announcement day or the day of change. The overall result is consistent with the price pressure hypothesis that predicts a temporary change in stock price and in liquidity and with the view that Asia Pacific investors value corporate sustainability in a negative way.