Review of Managerial Science

, Volume 13, Issue 2, pp 483–511 | Cite as

Corporate scandals and the reliability of ESG assessments: evidence from an international sample

  • Sebastian UtzEmail author
Original Paper


This paper studies the reliability of environmental, social, and governance (ESG) assessments in the case of corporate scandals. Reliable disclosures on ESG assessments may reduce information asymmetries when it comes to due diligence, for instance. We use the press release of corporate scandals, which are seen as being unexpected events, and analyze ESG assessments before, during, and after the event year. We find a significant decline in retrospective controversy indicators during the period in which the scandals are released. Subsequent to the scandals, we document a rebound of these indicators. The assessments of forward-looking indicators indicate slightly significant increases during the scandal period. Moreover, our findings show that aggregated ESG assessments consisting of both retrospective and forward-looking indicators are useless when it comes to predicting corporate scandals. Therefore, the managerial implication of this paper recommends educating managers and investors upon how to obtain a comprehensive vision of the corporate social responsibility of a firm based on single ESG assessment indicators.


Corporate social responsibility ESG rating CSR scandals ESG reliability 

JEL classification

G39 G14 


  1. Alles MG, Kogan A, Vasarhelyi MA (2004) Restoring auditor credibility: tertiary monitoring and logging of continuous assurance systems. Int J Account Inf Syst 5:183–202Google Scholar
  2. Attig N, Ghoul SE, Guedhami O, Suh J (2013) Corporate social responsibility and credit ratings. J Bus Ethics 117:679–694Google Scholar
  3. Ballestero E, Bravo M, Pérez-Gladish B, Arenas-Parra M, Plà-Santamaria D (2012) Socially responsible investment: a multicriteria approach to portfolio selection combining ethical and financial objectives. Eur J Oper Res 216:487–494Google Scholar
  4. Baucus MS, Baucus DA (1997) Paying the piper: an empirical examination of longer-term financial consequences of illegal corporate behavior. Acad Manage J 40:129–151Google Scholar
  5. Beal DJ, Goyen M (1998) ‘Putting your money where you mouth is’ A profile of ethical investors. Financ Serv Rev 7:129–143Google Scholar
  6. Beal DJ, Goyen M, Phillips P (2005) Why do we invest ethically? J Invest 14:66–78Google Scholar
  7. Belal AR, Cooper S (2011) The absence of corporate social responsibility reporting in Bangladesh. Critic Perspect Account 22:654–667Google Scholar
  8. Bernile G, Jarrell GA (2009) The impact of the options backdating scandal on shareholders. J Account Econ 47:2–26Google Scholar
  9. Bhandari LC (1988) Debt/equity ratios and expected common stock returns: empirical evidence. J Finance 43:507–528Google Scholar
  10. Boos DD (2013) Introduction to the bootstrap world. Stat Sci 18:168–174Google Scholar
  11. Brown HS, De Jong M, Levy DL (2009) Building institutions based on information disclosure: lessons from GRIs sustainability reporting. J Clean Prod 17:571–580Google Scholar
  12. Chapman-Davies A, Parwada JT, Tan KM (2014) The impact of scandals on mutual fund performance, money flows and fees. SSRN working paperGoogle Scholar
  13. Chatterji AK, Levine DI, Toffel MW (2009) How well do social ratings actually measure corporate social responsibility? J Econ Manag Strategy 18:125–169Google Scholar
  14. Chen Y, Ganesan S, Liu Y (2009) Does a firm’s product-recall strategy affect its financial value? An examination of strategic alternatives during product-harm crises. J Mark 73:214–226Google Scholar
  15. Cheung AWK (2011) Do stock investors value corporate sustainability? Evidence from an event study. J Bus Ethics 99:145–165Google Scholar
  16. Cho HJ, Pucik V (2005) Relationship between innovativeness, quality, growth, profitability, and market value. Strateg Manage J 26:555–575Google Scholar
  17. Cormier D, Magnan M, van Velthoven B (2005) Environmental disclosure quality in large German companies: economic incentives, public pressures or institutional conditions? Eur Account Rev 14:3–39Google Scholar
  18. Curran MM, Moran D (2007) Impact of the FTSE4Good index on firm price: an event study. J Environ Manag 82:529–537Google Scholar
  19. Daniel K, Titman S (1997) Evidence on the characteristics of cross sectional variation in stock returns. J Finance 52:1–33Google Scholar
  20. Davidson W, Worrell D (1992) The effect of product recall announcements on shareholder wealth. Strateg Manage J 13:467–473Google Scholar
  21. Delmas M, Blass VD (2010) Measuring corporate environmental performance: the trade-offs of sustainability ratings. Bus Strategy Environ 19:245–260Google Scholar
  22. Devinney TM (2009) Is the socially responsible corporation a myth? The good, bad and ugly of corporate social responsibility. Acad Manage Perspect 23:44–56Google Scholar
  23. Diebecker J, Sommer F (2017) The impact of corporate sustainability performance on information asymmetry: the role of institutional differences. Rev Manag Sci 11:471–517Google Scholar
  24. Dorfleitner G, Utz S (2012) Safety first portfolio choice based on financial and sustainability returns. Eur J Oper Res 221:155–164Google Scholar
  25. Dorfleitner G, Utz S, Wimmer M (2014) Patience pays off—financial long-term benefits of sustainable management decisions. SSRN Working PaperGoogle Scholar
  26. Dubbink W, Graafland J, Van Liedekerke L (2008) CSR, transparency and the role of intermediate organisations. J Bus Ethics 82:391–406Google Scholar
  27. Eccles RG, Serafeim G, Krzus MP (2011) Market interest in nonfinancial information. J Appl Corp Finance 23:113–127Google Scholar
  28. Edmans A (2011) Does the stock market fully value intangibles? Employee satisfaction and equity prices. J Financ Econ 101:621–640Google Scholar
  29. Escrig-Olmedo E, Munoz-Torres MJ, Fernández-Izquierdo MA, Rivera-Lirio JM (2014) Lights and shadows on sustainability rating scoring. Rev Manag Sci 8:559–574Google Scholar
  30. EUROSIF (2016) European SRI study 2016.
  31. Fama EF, French KR (1988) Dividend yields and expected stock returns. J Financ Econ 22:3–25Google Scholar
  32. Fama EF, French KR (1992) The cross-section of expected stock returns. J Finance 47:427–465Google Scholar
  33. Fatemi A, Glaum M, Kaiser S (2017) ESG performance and firm value: the moderating role of disclosure. Glob Finance J. Google Scholar
  34. Fernández-Gago R, Cabeza-García L, Nieto M (2016) Corporate social responsibility, board of directors, and firm performance: an analysis of their relationships. Rev Manag Sci 10:85–104Google Scholar
  35. Fernandez-Izquierdo MA, Arago-Manzana VA, Matallín-Sáez JC, Nieto-Soria L (2009) Do investors in Spain react to news on sustainability and corporate social responsibility. Int J Sustain Econ 1:227–244Google Scholar
  36. Ferstl R, Utz S, Wimmer M (2012) The effect of the Japan 2011 disaster on nuclear and alternative energy stocks worldwide: an event study. BuR Bus Res 5:25–41Google Scholar
  37. Fisman R, Svensson J (2007) Are corruption and taxation really harmful to growth? Firm level evidence. J Dev Econ 83:63–75Google Scholar
  38. Fortanier F, Kolk A, Pinske J (2011) Harmonization in CSR reporting. Manage Int Rev 51:665–696Google Scholar
  39. Freedman S, Kearney M, Lederman M (2012) Product recalls, imperfect information, and spillover effects: lessons from the consumer response to the 2007 toy recalls. Rev Econ Stat 94:499–516Google Scholar
  40. Frost GR, Seamer M (2002) Adoption of environmental reporting and management practices: an analysis of New South Wales public sector entities. Financ Account Manage 18:103–127Google Scholar
  41. Gallo PJ, Christensen LJ (2011) Firm size matters: an empirical investigation of organizational size and ownership on sustainability-related behaviors. Bus Soc 50:315–349Google Scholar
  42. Gamerschlag R, Möller K, Verbeeten F (2011) Determinants of voluntary CSR disclosure: empirical evidence from Germany. Rev Manag Sci 5:233–262Google Scholar
  43. Getzner M, Grabner-Kräuter S (2004) Consumer preferences and marketing strategies for ‘green shares’ specifics of the Austrian market. Int J Bank Mark 22:260–279Google Scholar
  44. Giannarakis G, Konteos G, Sariannidis N (2014) Financial, governance and environmental determinants of corporate social responsible disclosure. Manage Decis 52:1928–1951Google Scholar
  45. Global Reporting Initiative (2017) Reporting principles and standard disclosures. Technical report, Global Reporting Initiative.
  46. Gokhale J, Brooks RM, Tremblay VJ (2014) The effect on stockholder wealth of product recalls and government action: the case of Toyota’s accelerator pedal recall. Q Rev Econ Finance 54:521–528Google Scholar
  47. Graves SB, Rehbein K, Waddock S (2001) Fad and fashion in shareholder activism: the landscape of shareholder resolutions, 1988–1998. Bus Soc Rev 106:293–315Google Scholar
  48. Gürtürk A, Hahn R (2016) An empirical assessment of assurance statements in sustainability reports: smoke screens or enlightening information? J Clean Prod 136:30–41Google Scholar
  49. Hafenstein A, Bassen A (2016) Influences for using sustainability information in the investment decision-making of non-professional investors. J Sustain Finance Invest 6:186–210Google Scholar
  50. Hahn R, Kühnen M (2013) Determinants of sustainability reporting: a review of results, trends, theory, and opportunities in an expanding field of research. J Clean Prod 59:5–21Google Scholar
  51. Haigh M, Hazelton J (2004) Financial markets: a tool for social responsibility? J Bus Ethics 52:59–71Google Scholar
  52. Hallerbach W, Ning H, Soppe A, Spronk J (2004) A framework for managing a portfolio of socially responsible investments. Eur J Oper Res 153:517–529Google Scholar
  53. Heflin F, Wallace D (2015) The BP oil spill: shareholder wealth effects and environmental disclosures. J Bus Finance Account 44:337–374 (SSRN Working Paper) Google Scholar
  54. Hess D (2007) Social reporting and new governance regulation: the prospects of achieving corporate accountability through transparency. Bus Ethics Q 17:453–476Google Scholar
  55. Hess D (2008) The three pillars of corporate social reporting as new governance regulation: disclosure, dialogue, and development. Bus Ethics Q 18:447–482Google Scholar
  56. Hess D, Dunfee TW (2007) The Kasky-Nike threat to corporate social reporting: implementing a standard of optimal truthful disclosure as a solution. Bus Ethics Q 17:5–32Google Scholar
  57. Hillman AJ, Keim GD (2001) Shareholder value, stakeholder management, and social issues: what’s the bottom line? Strateg Manage J 22:125–139Google Scholar
  58. Hong H, Kubik JD, Scheinkman JA (2012) Financial constraints on corporate goodness. nBER working paperGoogle Scholar
  59. Houge T, Wellman J (2005) Fallout from mutual fund trading scandal. J Bus Ethics 62:129–139Google Scholar
  60. Ioannou I, Serafeim G (2015) The impact of corporate social responsibility on investment recommendations: analysts’ perceptions and shifting institutional logics. Strateg Manage J 36:1053–1081Google Scholar
  61. Ioannou I, Serafeim G (2017) The consequences of mandatory corporate sustainability reporting. SSRN working paperGoogle Scholar
  62. Jain S, Jain P, Rezaee Z (2010) Stock market reactions to regulatory investigations: evidence from options backdating. Res Account Regul 22:52–57Google Scholar
  63. Janney JJ, Gove S (2011) Reputation and corporate social responsibility aberrations, trends, and hypocrisy: reactions to firm choices in the stock option backdating scandal. J Manage Stud 48:1562–1585Google Scholar
  64. Jansson M, Biel A (2011) Motives to engage in sustainable investment: a comparison between institutional and private investors. Sustain Dev 19:135–142Google Scholar
  65. Jansson M, Biel A (2014) Investment institutions’ belief about and attitudes towards socially responsible investment (SRI): a comparison between SRI and non-SRI management. Sustain Dev 22:33–41Google Scholar
  66. Jarrel G, Peltzman S (1985) The impact of product recalls on the wealth of sellers. J Polit Econ 93:512–536Google Scholar
  67. Jory SR, Ngo TN, Wang D, Saha A (2015) The market response to corporate scandals involving CEOs. Appl Econ 47:1723–1738Google Scholar
  68. Kappel V, Schmidt P, Ziegler A (2009) Human rights abuse and corporate stock performance—an event study analysis. SSRN working paperGoogle Scholar
  69. Kim Y, Li H, Li S (2014) Corporate social responsibility and stock price crash risk. J Bank Finance 43:1–13Google Scholar
  70. Klonoski RJ (1986) The moral responsibilities of stockholders. J Bus Ethics 5:385–390Google Scholar
  71. Knecht F, Reich S (2014) Wertschöpfungsketten: ESG als kritischer Erfolgsfaktor für das Management des gesamten Lebenszyklus. In: Schulz T, Bergius S (eds) Corporate social responsibility. Springer, Berlin (chap CSR und Finance) Google Scholar
  72. Kolk A (2008) Sustainability, accountability and corporate governance: exploring multinationals’ reporting practices. Bus Strategy Environ 18:1–15Google Scholar
  73. Kumar A, Smith C, Badis L, Wang N, Ambrosy P, Tavares R (2016) ESG factors and risk-adjusted performance: a new quantitative model. J Sustain Finance Invest 6:292–300Google Scholar
  74. Laufer WS (2003) Social accountability and corporate greenwashing. J Bus Ethics 43:253–261Google Scholar
  75. Levy DL, Brown HS, De Jong M (2010) The contested politics of corporate governance: the case of the global reporting initiative. Bus Soc 49:88–115Google Scholar
  76. Lewis A, Mackenzie C (2000) Support for investor activism among UK ethical investors. J Bus Ethics 24:215–222Google Scholar
  77. Liua S, Wu D (2016) Competing by conducting good deeds: the peer effect of corporate social responsibility. Finance Res Lett 16:47–54Google Scholar
  78. Long DM, Rao S (1995) The wealth effects of unethical business behavior. J Econ Finance 19:65–73Google Scholar
  79. MacKinlay CA (1997) Event studies in economics and finance. J Econ Lit 35:13–39Google Scholar
  80. MacLean R (2012) ESG comes of age. Environ Qual Manage 22:99–108Google Scholar
  81. Magno F (2012) Managing product recalls: the effect of time, responsible vs. opportunistic recall management and blame on consumers’ attitudes. Procedia Soc Behav Sci 58:1309–1315Google Scholar
  82. Mamingi N, Dasgupta S, Laplante B, Hong JH (2006) Firms’ environmental performance: does news matter?. World Bank Policy research working paper no. 3888Google Scholar
  83. Marcus AA, Goodman R (1989) Corporate adjustments to catastrophe: a study of investor reaction to Bhopal. Ind Crisis Q 3:213–234Google Scholar
  84. McWilliams A, Siegel D, Teoh SH (1999) Issues in the use of the event study methodology: a critical analysis of corporate social responsibility studies. Organ Res Methods 2:340–365Google Scholar
  85. Mitchell ML, Netter JM (1994) The role of financial economics in securities fraud cases: applications at the securities and exchange commission. Bus Lawyer 49:545–590Google Scholar
  86. Mock TJ, Rao SS, Srivastava RP (2013) The development of worldwide sustainability reporting assurance. Aust Account Rev 67:280–294Google Scholar
  87. Moneva JM, Ortas E (2008) Are stock markets influenced by sustainability matter? Evidence from European companies. Int J Sustain Econ 1:1–16Google Scholar
  88. MSCI (2016) Volkswagen scandal underlines need for ESG analysis.
  89. Nelson KK, Price RA, Rountree BR (2008) The market reaction to Athur Anderson’s role in the Enron scandal: loss of reputation or confounding effects? J Account Econ 46:279–293Google Scholar
  90. Nikolaeva R, Bicho M (2011) The role of institutional and reputational factors in the voluntary adoption of corporate social responsibility standards. J Acad Mark Sci 39:136–157Google Scholar
  91. Nilsson J (2009) Segmenting socially responsible mutual fund investors: the influence of financial return and social responsibility. Int J Bank 27:5–31Google Scholar
  92. O’Dwyer B, Owen DL, Unerman J (2011) Seeking legitimacy for new assurance forms: the case of assurance on sustainability reporting. Account Organ Soc 36:31–52Google Scholar
  93. Oll J, Hahn R, Reimsbach D, Kotzian P (2016) Tackling complexity in business and society research: the methodological and thematic potential of factorial surveys. Bus Soc. Google Scholar
  94. Orlitzky M (2013) Corporate social responsibility, noise, and stock market volatility. Acad Manage Perspect 27:238–254Google Scholar
  95. Paetzold F, Busch T (2014) Unleashing the powerful few: sustainable investing behaviour of wealthy private investors. Organ Environ 27:347–367Google Scholar
  96. Pasewark WR, Riley ME (2010) It’s a matter of principle: the role of personal values in investment decisions. J Bus Ethics 93:237–253Google Scholar
  97. Pfarrer MD, Decelles KA, Smith KG, Taylor MS (2008) After the fall: reintegrating the corrupt organization. Acad Manage Rev 33:730–749Google Scholar
  98. Pillmore EM (2003) How we’re fixing up Tyco? Harv Bus Rev 81:96–103Google Scholar
  99. Pontiff J, Schall LD (1998) Book-to-market ratios as predictors of market returns. J Financ Econ 49:141–160Google Scholar
  100. Potter M, Schwartz CG (2012) The mutual fund scandal and investor response. J Index Invest 1:29–38Google Scholar
  101. Prado-Lorenzo J, Rodríguez-Domínguez L, Gallego-Álvarez I, García-Sánchez I (2009) Factors influencing the disclosure of greenhouse gas emissions in companies world-wide. Manage Decis 47:1133–1157Google Scholar
  102. Rehbein K, Waddock S, Graves SB (2004) Understanding shareholder activism: which corporations are targeted? Bus Soc 43:239–268Google Scholar
  103. Reuters T (2013) Thomson Reuters corporate responsibility ratings (TRCRR) rating and ranking rules and methodologies.
  104. Reverte C (2016) Corporate social responsibility disclosure and market valuation: evidence from Spanish listed firms. Rev Manag Sci 10:411–435Google Scholar
  105. Rivoli P (1995) Ethical aspects of investor behavior. J Bus Ethics 14:267–277Google Scholar
  106. Rusinova V, Wernicke G (2016) Access to finance and corporate social responsibility: evidence from a natural experiment. In: Humphreys J (ed) Proceedings of the seventy-sixth annual meeting of the academy of management: making organizations meaningful. Academy of Management, Briar Cliff Manor, NY, pp 1700–1705Google Scholar
  107. Schwert GW (1983) Size and stock returns, and other empirical regularities. J Financ Econ 12:3–12Google Scholar
  108. Shiller RJ (2005) Irrational exuberance, 2nd edn. Princeton University Press, PrincetonGoogle Scholar
  109. Shleifer A (2000) Inefficient markets: an introduction to behavioral finance. Oxford University Press, OxfordGoogle Scholar
  110. Silverman H (2002) Henry Silverman on fraud and recovery. Accessed 4 June 2017. (Bloomberg Businessweek)
  111. Sims R (2009) Toward a better understanding of organizational efforts to rebuild reputation following an ethical scandal. J Bus Ethics 90:453–472Google Scholar
  112. Souiden N, Pons F (2009) Product recall crisis management: the impact on manufacturer’s image, consumer loyalty and purchase intention. J Prod Brand Manage 18:106–114Google Scholar
  113. S&P Dow Jones Indices (2015) Volkswagen AG to be removed from the Dow Jones sustainability indices. Technical report, S&P Dow Jones Indices,
  114. Sparkes R (2002) Socially responsible investment: a global revolution. John Wiley, New YorkGoogle Scholar
  115. Stanny E, Ely K (2008) Corporate environmental disclosures about the effects of climate change. Corp Soc Responsib Environ Manage 15:338–348Google Scholar
  116. Stellner C, Klein C, Zwergel B (2015) Corporate social responsibility and Eurozone corporate bonds: the moderating role of country sustainability. J Bank Finance 59:538–549Google Scholar
  117. Strachan JL, Smith DB, Beedles W (1983) The price reaction to (alleged) corporate crime. Financ Rev 18:121–132Google Scholar
  118. Thaler RH (1993) Advances in behavioral finance. Russell Sage Foundation, New YorkGoogle Scholar
  119. Thaler RH (2005) Advances in behavioral finance. II. Princeton University Press, PrincetonGoogle Scholar
  120. USSIF (2016) US sustainable, responsible and impact investing trends 2016.
  121. Utz S (2017) Over-investment or risk mitigation? Corporate social responsibility in Asia-Pacific, Europe, Japan, and the United States. Rev Financ Econ. Google Scholar
  122. Utz S, Wimmer M, Steuer RE (2015) Tri-criterion modeling for constructing more-sustainable mutual funds. Eur J Oper Res 246:331–338Google Scholar
  123. Wang X, Cao F, Ye K (2016) Mandatory corporate social responsibility (CSR) reporting and financial reporting quality: evidence from a quasi-natural experiment. J Bus Ethics. Google Scholar
  124. Windolph SE (2011) Assessing corporate sustainability through ratings: challenges and their causes. J Environ Sustain 1:36–57Google Scholar
  125. Zorio A, Garcí-Benau MA, Sierra L (2013) Sustainability development and the quality of assurance reports: empirical evidence. Bus Strategy Environ 22:484–500Google Scholar

Copyright information

© Springer-Verlag GmbH Germany 2017

Authors and Affiliations

  1. 1.School of FinanceUniversity of St. GallenSt. GallenSwitzerland

Personalised recommendations