CSR-Reporting obligation in Denmark and France and its influence on a firm's market value

A difference-in-differences approach with a continious variable

Research Paper (postgraduate), 2019

21 Pages


Table of Contents


1. Introduction

2. Literature Review
2.1 Theoretical Framework
2.2 Prior Research

3. Materials and Methods
3.1 Sample Selection
3.2 Research Methodology

4. Research and Discussion
4.1 Results
4.2 Discussion
4.3 Robustness analysis

5. Conclusion


6. Appendix


This paper examines the influence of the ESG-Score on the market value. Unlike most researches, this one does not only concentrate on the effect of a single ESG-Score. Instead, it is a natural experience, analysing the impact of an exogenous event on a firm’s market value. More precisely, the influence of a law’s implementation to disclose sustainable belongings of a firm. The two countries that introduced aforementioned law were Denmark in 2009 and France in 2012. By using a Difference-in-Differences Approach, significant changes in market value for firm’s obligated to report within those countries will be analysed and compared to other firms non obligated, listed in the STOXX Europe 600.

The estimates suggest a significant negative influence on the market value for firms obligated to report situated in the post-intervention. Further, the negative influence increases with a complementary increase in delta ESG-Score. Those results suggest that a company should not suddenly abdomen itself to sustainability from one year to another. It is advisable to gradually address the matter in order to not negatively influence the market value of the company.

1. Introduction

Sustainable thinking is a movement of modern world society that can be noticed each passing day. When comparing the year of 2009 with the one of 2012, an increase in socially reasonable investment assets of 22 percent is noticeable (Giannarakis, et al., 2014). Besides, an ever-increasing number of people are joining environmental protest groups and pressure governments over the world to act. They want the government to, for example, force firms to produce more sustainable. Therefore, Corporate Social Responsibility (CSR) is becoming increasingly important in the daily business of a company. Many firms consequently responded by publishing a sustainability report each year and with that voluntarily report about environmental and social concerns of the company. Often, they disclosure such a report to legitimize their behaviour and actions (Giannarakis, et al., 2014). The government of Denmark reacted in 2009 and the one of France in 2012 to named protests with a law requiring companies meeting certain criteria to publish a report that contains non-financial information (NFI) (Hallensleben & Harrop, 2015).

Ever since there have been quantitative market analyses, researchers investigated factors that influence a firms market value. (Gras-Gil, et al., 2016) Variables and incidents effecting a firm in this manner change over time and therefore need to be modified regularly.

This present research paper is focussing on the influence of explained law on the market value of firms listed in STOXX Europe 600. It will be analysed whether firms suffer from named new implemented law and if so, to which extent. Therefore, a comparison of a firm’s market value between the pre- and postintervention will be undertaken as well as a comparison between firms that are obligated to report with those none obligated to report. Consequently, the research question of this paper is:

Does an CSR-reporting obligation significantly influence a firm’s market value?

Hence, there are three possible scenarios. A statistically relevant negative influence on the market value, no considerably influence at all and a significantly positive influence on the market value due to the law. The following graphic beautifully summarizes the possibilities:

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: How CSR-reporting obligation may effect a firm’s market value (own illustration)

This paper is structured as follows: in section two a literature review will be undertaken, including a theoretical framework of sustainable development and prior research regarding important related topics. After that, in section three, materials and methods used here will be listed in order to be able to answer the initial question with statistical certainty. Thereafter, the focus in chapter four will be on research, including results and further discussions. This paper will be concluded with a closing summary in chapter five and recommendations for further studies.

2. Literature Review

This section is split into two parts, starting with the theoretical framework necessary in order to better understand the circumstances of this working paper. It will be discussed what kind of laws regarding sustainable disclosures are already implemented and who is obligated to comply with it. Thereafter, prior research matching named topic will be analysed and, based on this, the contribution of this research will be emphasised.

2.1 Theoretical Framework

The European Union has introduced the directive “2014/95/EU” in 2014, obligating firms above a certain size to disclosure non-financial information in either their management report or in a new, non-financial report (Stawinoga, 2017). With that, it responded to the uprising debate about more transparency in a firm. Generally speaking, the EU has enforced a measure to advance towards the goal of achieving the United Nations Sustainable Development Goals (SDGs) as well as towards the Paris Climate Agreement (Diaz, et al., 2017). The firm’s Corporate Social Responsibility (CSR), including its environmental and social responsiveness is analysed in this non-financial report. Most generally, CSR is defined as the company’s commitment to calculate and recognise the social, environmental and economic consequences of its own actions and to act accordingly (Taliento, et al., 2019). In order to calculate the extent of a firm’s commitment towards named CSR disclosure, three different key variables are composed as one to receive a Score. Environmental, Social and Governance taken together built the ESG-Score. Therefore, the ESG-Score is an approximation for a company’s CSR intensity. It has a range from 0 to a 100 points, where 0 displays the worst stance regarding non-financial information and 100 the best one. In other words, the ESG-Score reinforces those companies that look beyond the short term profit and think in the long run (Peiró-Signes, et al., 2013).

Denmark and France are pioneers in that field and already implemented similar laws before the EU did. The first of the above introduced a law in 2009 asking those firms to publish a non-financial report that are defined as a large company after Danish law. To fulfil that, a company has to meet two out of those three criteria for two consecutive years (Danish Business Authority, 2013):

- Balance sum of 156 m Danish Krone
- Revenue of 313 m Danish Krone
- Average number of 250 full-time employees

Approximately 1.000 Danish companies fulfil these criteria and were consequently obligated to report from 2009 on. This report has to entail a company’s CSR policy in general. Further into detail, it includes those measurements that had been taken by the company during the last fiscal year to implement mentioned policies. This includes a firm’s achievement of CSR work and future expectations (Business Danish Authority, 2016).

Companies with headquarters in France have to report since 2012, insofar as they are public. Private companies meeting certain criteria have to report as well, but will not be further analysed in this paper, since the focus will be set on the STOXX Europe 600 market and therefore, only listed companies are important to consider. With the beginning of 2012, affected companies have to append a disclosure of social and ecological consequences of their behaviour to the management report. If some necessary information are missing in aforesaid report, the company has to explain why it was not possible to state them. After its disclosure, the report has to be vetted by an independent third-party company (Legifrance - le service public de la diffusion de droit, 2012).

This paper is analysing this exact European frame given: the influence on the market value of a company obligated to report in comparison to those non obligated. It is a natural experiment which means that the data obtained is the result of one in reality happened event unlike those from true experiments. A natural experiment contains a real change that happened to a part of the population to be considered and can vary extensively in its shape. For example, a medication treatment of a disease is just as much a case in study as a change of political borders. Since the researcher usually has no influence on the treatment nor the control group, those kind of investigations are consequently observational studies (Dunning, 2015). To compare the difference between the control- and treatment group after the intervention, it is important to have a random assignment. A natural experiment assures this condition, since the outcomes of the disparity between the treatment and control group are reasoned through arguments and empirical evidence to guarantee “as if” randomization (Dunning, 2015).

The follow-ups of a natural experiment in shape of a political intervention in Denmark and France will be analysed in this research paper. At the end of and through this empirical approach, it is expected that the impact of the new European Union directive on the STOXX European 600 market will be better assessable.

2.2 Prior Research

This study is related to several other studies focusing on a relatively similar analysis approach. There are though, some important differences to previous studies, making this research very relevant to provide further conclusions on the future development of environmental and social concerns of great European companies.

Prior research mainly focused on the general influence of an ESG-Score on the market value. The results obtained are very controversial. Some papers, such as Wright & Ferris or Bromiley & Marcus found a negative influence of the ESG-Score on the market value, indicating that an increase in Corporate Social Responsibility only leads to increasing costs and thus to a decrease in financial performance (Bromiley & Marcus, 1989) (Wright & Ferris, 1997). It is important to keep in mind that most of those research projects, suggesting a negative influence of the ESG-Score on the market value, were written from the 1980’s until the 1990’s and are therefore obsolete.

A newer investigation was undertaken by the Harvard University. They expanded the usual research of ESG’s influence on the market value by implementing the influence of a non significant enhancement in firm internal innovation. They used a data series from 2002 to 2011 and found out that under named circumstances, the financial performance of a company decreases when the ESG-Score increases and vice versa (Taliento, et al., 2019).

A research by Barnett and Salomon came to the result that there is a U-shaped relationship between a firm’s corporate social performance and its financial performance. This study used the Social Investment Forum to find 67 companies offering the most socially responsible funds. After detecting needed companies, they used data from the Center for Research in Security Prices (CRSP) to get all of the other necessary variables of those firms. According to their results, a firm should either not invest into environmental and social belongings at all, or completely commit to fulfil and disclosure them (Barnett & Salomon, 2006).

Some studies were not able to find any significant influence of the ESG-Score on the market value (Peiró-Signes, et al., 2013) (Landi & Sciarelli, 2019).

However, most researchers nowadays find a positive influence of the ESG-Score on the market value. For instance, Kim and Kim showed that a strengthening of CSR activities results in an increase in returns (Kim & Kim, 2014). They constituted an unbalanced panel with 170 companies obtained from the MSCI World and the CSRP at a time period of 21 years, beginning in 1991 and ending in 2011. Based on their research results, an increase in overall ESG leads to a reduction of systematic risks and at the same time to an increase in the financial performance (Kim & Kim, 2014). Accordingly, undertakings to improve the overall ESG-Score are also financially worthwhile for companies.

Buchanan, Cao and Cheng went further and conducted a more comprehensive analysis of the impact of CSR on the market value during the global financial crisis in 2008. A DID-Approach was used to analyse how the market value of companies scoring high on ESG changes, compared to companies with a relatively low score during the financial crisis. Out of the 3.000 Russell Index in 2007 those firms were selected that, at the same time, additionally have monthly data available in the CRSP. This research came to the result that firms with an high ESG-Score have a significantly higher market value before the crisis, but experience a greater loss during the crisis (Buchanan, et al., 2018).

There are obviously ambiguous opinions about ESG-Score’s influence on a firm’s market value. However, these examples have shown that there is only little research on an unexpected exogenous event. Buchanan et al. show the most similarity to the study that will be conducted here. Still, this present research differs to named previous study, since it focuses on the influence of an implementation of a national law, while Buchanan et al. investigated an exogenous shock. This study thus closes the gap in research as it shows whether the market value of a company affected changes significantly as a result of this intervention. Since both laws examined here were already enforced in 2009 and 2012, conclusions can be drawn for future similar laws. The EU Directive "2014/95/EU" for example, was implemented in national law for most countries in 2019. For the first time, affected companies are now required to report for the fiscal year of 2018. In light of these features, this directive exhibits very similar structures to the laws analysed here. Therefore, an action recommendation for those firms obligated to report due to the EU directive can be derived.

3. Materials and Methods

Within this chapter, the present dataset is comprehensively depicted in general terms. That also includes the description of relevant coefficients and its composition. Subsequently, the research methodology used here will be detailed and the regression equation is determined. Then based on this, individual variables will be presented and their use justified.

3.1 Sample Selection

This study uses its data from the “Thomson Reuters Datastream Asset4” platform. The firms used are those listed in the European STOXX 600 at the time of May 2019. The index captures the at that time 600 biggest European companies, providing extremely favourable conditions to compare changes on the European market. This sample uses annual data, since the ESG-Score is mostly updated once a year. Furthermore, this research focuses on larger companies, since firms have to attain a certain size to be affected from the law discussed earlier in this paper. The temporal range of given unbalanced panel dataset lasts 18 years, starting in 2002 and ending in 2019. Due to missing data, the final dataset consists of 6.448 observations with a total of 21 countries and 559 companies.

The dependent variable market value is calculated by multiplying the price per share times the number of ordinary shares of a company. In addition, the country of origin of the company was determined here by taking the first two digits of the ISIN code and generating it as a new variable. Conditions for firms in Denmark for being obligated to disclosure a CSR-report are enacted in Danish Krones. For a better orientation, the average exchange rate of the last ten years from Euro to Danish Krones will be given. 1 Euro corresponds to approximately 7.45 Danish Krones (Thomson Reuters, 2019). In order to prevent currency translations, affected variables are available in two currencies, which have been provided by the Thomson Reuters database in a correspondingly updated form. The Danish Krone is needed to determine whether a CSR-report has to be published or not, while the Euro is necessary to compare affected variables, namely balance sum and revenue, with other firms not from Denmark.

The Thomson Reuters database has, regarding the ESG-Score, one of the largest content collection operations that exist so far. The composition of one firm’s ESG-Score is determined by taking over 400 ESG-belonging measures into account and selecting the most comparable and relevant 178 fields. Those in turn, are divided into ten categories that again, have a differing influence on the overall ESG-Score (Kim & Kim, 2014). For example, resource use, emissions, human rights and a company’s CSR-strategy are a few examples out of mentioned ten categories that are important indicators influencing the overall ESG-Score. The span of declared Score ranges from 0, indicating a very poor CSR-strategy of a company to 100, the highest points to be obtained (Thomson Reuters, 2019).

Companies are divided into different industry classes through the T homson R euters B usiness C lassification, namely TRBC Sector. It is levelled up to five different precise subcategories. This research paper used the third most detailed differentiation according to industrial classes, resulting in 54 general distinctions possible and making use of 52 distinctions within the data set (Thomson Reuters, 2018).


Excerpt out of 21 pages


CSR-Reporting obligation in Denmark and France and its influence on a firm's market value
A difference-in-differences approach with a continious variable
Carl von Ossietzky University of Oldenburg  (Wirtschafts- und Rechtswissenschaften)
Catalog Number
ISBN (eBook)
ISBN (Book)
ESG-Score, CSR-Reporting Obligation, DID, STOXX 600
Quote paper
Anneke Klein (Author), 2019, CSR-Reporting obligation in Denmark and France and its influence on a firm's market value, Munich, GRIN Verlag, https://www.grin.com/document/502545


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