The Moderating Role of Financial Constraints in the Influence of Environmental Sustainability Reporting on the Stock Returns of Firms Listed on the Tehran Stock Exchange

Torki, Leila; Amani, Narges

doi:10.52547/jep.3.2.101

The Moderating Role of Financial Constraints in the Influence of Environmental Sustainability Reporting on the Stock Returns of Firms Listed on the Tehran Stock Exchange

Document Type : Original Article

Authors

Leila Torki ¹
Narges Amani ²

¹ Assistant Professor, Department of Economics, Faculty of Administrative Sciences and Economics, University of Isfahan, Isfahan, Iran

² Ms in Economics, Department of Economics, , Faculty of Administrative Sciences and Economics, University of Isfahan, Isfahan, Iran

10.52547/jep.3.2.101

Abstract

Stock return demonstrates the efficiency of a firm in creating net interests for the shareholders in return for their investment in firm stocks and is influenced by various factors. The present study seeks to investigate the impact of Social Performance Reporting on stock returns considering the moderating role of financial constraints. The present study used data from firms listed in Tehran Stock Exchange selected through purposive sampling over 2012-2019. The present study is applied in terms of the research objective, and multiple regression has been used for data analysis. The Kaplan and Zingales (1997) model has been used to estimate financial constraints in this study, given the current practice in previous domestic and foreign research. Results indicated that Social Performance Reporting had a significant and positive influence on the stock returns of firms listed on the Tehran Stock Exchange. Besides, results demonstrated that financial constraint played a negative moderating role in the relationship between Social Performance Reporting and the stock returns of firms listed in the Tehran Stock Exchange.

Keywords

20.1001.1.27171485.2022.3.2.5.4

References

Aghaei, M. A., Sajjadpour, R., Pishgouii, H. (2014). Examining the relationship between unexpected income and earnings changes with stock returns, Accounting reviews, 1 (3): 1-17.

Amiri Lameshkan, A. (2015). The influence of corporate governance on stock return fluctuations in firms listed on the Tehran Stock Exchange, (Master Thesis). Kushner Higher Education Institute.

Barzegari Khaneghah, J., Abbasi, I., Qadakforshan, M. (2020). Examination of the interactive effect of tax risk and social responsibility on the value of firms listed in the Tehran Stock Exchange, Accounting knowledge, 11 (1): 159-189.

Pourheidari, O., Sadeghi, A. (2011). The Relationship between non-financial and financial information and stock returns of firms listed in the Tehran Stock Exchange, Quarterly Journal of Experimental Studies in Financial Accounting, 9 (31): 1-31.

Hajiha, Z., Chenari Bouket, H. (2016). Social responsibility and stock returns, Bi-Quarterly Journal of Behavioral Value Accounting, 1 (1): 77-98.

Hassas Yeganeh, Y., Babajani, J., Taghavi Fard, M. T., Arianpour, A. (2018). Analysis of sustainable environmental performance and its influence on capital costs of firms listed in Tehran Stock Exchange, Bi-Quarterly Journal of Behavioral Value Accounting, 3 (5): 1-39.

Hosseini, S. E., Hashemi, S. A., Amiri, H., (2019). Analysis of accruals’ impact on returns on investment firms, Financial Accounting Quarterly, 11 (42): 1-23.

Raei, R., Telangi, A. (2004). Advanced investment management. Samt Publications.

Rahnema Roodpashti, F., Jalili, M., Ahmadi, M., (2010). Application of financial engineering in venture capital, Financial engineering and securities management, 1 (1): 126-140.

Abedi, S. (2019). Analysis of Green Banking Strategy in Sustainable Economic Development, Journal of Environmental Science, 64: 50-67.

Alivar, A. (2005). Essential financial statements. Organization Audit Organization. Tehran.

Asgarnejad Nouri, B. (2018). Factors influencing the stock returns of firms listed in Tehran Stock Exchange: A meta-analysis approach, Journal of Asset Financing and Management, 6 (1): 29-50.

Auditing Standards Development Committee (2009). Auditing Standards (Tenth Edition), Tehran Auditing Organization Publications.

Kanaani Amiri, M. (2007). Examining the relationship between stock returns and financial constraints in the Iranian capital market, Daneshvar Monthly, 14 (26): 17-30.

Farsad Amanollahi, Gh., Madanchi Zaj, M. (2019). The role of accruals in firms’ dividends and profitability, Financial accounting and auditing research, 11(43): 71-91.

Safdarian, L., Foroughi, D., Karimi, F. (2019). The role of risk-based returns in the prediction of future returns, Financial accounting and auditing research, 11(43): 199-217.

Lari Dasht Bayaz, M., Ghaem Maghami, K., Hassanzadeh Kalachai, M. (2014). Examining the impact of investment return and economic added-value criteria on stock returns of firms listed in Tehran Stock Exchange, Accounting knowledge, 5 (2): 1-23.

Nazemi, H., Abdoli, M. (2019). The Relationship between earning and returns and cash flows before and after the restatement of financial statements, Financial accounting and auditing research, 41: 69-92.

Yazdani, A. (2014). Examining the relationship between stock returns and earnings quality, Journal of Shahed University, 38: 14-29.

Abdulaziz, M., Kaouther, C., Mohammed, A. (2021). The Impact of Sustainable PerformanceDisclosure on Stock Return of Saudi Listed Firms: The Moderating Role of Financial Constraints, Financial Studies, 9(1): 2-17.

Akbas, F., Jiang, C., Koch, P. (2017). The Trend in Firm Proﬁtability and the Cross-Section of Stock Returns, The Accounting Review.

Andreea, S., Carmel, V. )2015(. Using CSR to mitigate information asymmetry in the banking sector, Management & Marketing, 10: 316–29.

Ball, R., Brown, P., (1986). All Empirical Evaluation of Accounting Income Numbers, Journal of accounting research, 6(2): 159-178.

Belkaoui, A.R., (1993). Accounting theory (Third edition). The Dryden Press.

Bernard, V.L., Thomas, J.K. (1990). Evidence that stock prices do not fully reﬂect the implications of current earnings for future earnings, Journal of Accounting and Economics, 13: 305-340.

Brockett, A., Rezaee, Z. (2013(. Corporate Sustainability: Integrating Performance and Reporting. John Wiley and Sons, Inc., Hoboken, NJ.

Carroll, A. (1997). Corporate social responsibility: Evolution of a definitional construct, Business & Society, 38: 268-295.

Chen, P., Zhang, G., (2007). How do accounting variables explain stock price movements? Theory and evidence, Journal of Accounting and Economics, 43 (2-3): 219-244.

Cheng, B, Ioannis, I., George, S. )2014(. Corporate social responsibility and access to finance, Strategic Management Journal, 35: 1–23.

Dechow, P.M., Khimich, N., Sloan, R.G., (2011). The Accrual Anomaly. The Handbook of Equity Market Anomalies: Translating Market Inefﬁciencies into Effective Investment Strategies. Wiley Finance (Chapter 2).

Dechow, P.M., Sloan, R.G., (1997). Returns to contrarian investment strategies: tests of naive expectations hypotheses, Journal of Accounting and Economics, 43: 3-27.

DeFond, M.L. Park, C.W., (2010). The Reversal of Abnormal Accruals and the Market Valuation of Earnings Surprises, The Accounting Review, 76 (3): 375-404.

Eccles, R., Ioannis, I., George, S., )2014(. The impact of corporate sustainability on organizational processes and performance, Management Science, 60: 2835–57.

Ender, M., Finn, B., (2019). Impact of CSR-Relevant News on Stock Prices of Companies Listed in the Austrian Traded Index (ATX). International Journal of Financial Studies, 7 (3): 1-18.

Fama, E., French, K. (2000). Forecasting Profitability and Earnings, The journal of Business, 73 (2): 161-175.

Fama, E., French, K. (1996). Multifactor Explanations of Asset Pricing Anomalies, Journal of Financial Economics, 51 (1): 55-84.

Fama, E.F., French, K.R. (1992). The cross-section of expected stock returns, The Journal of Finance, 47 (2): 427-465.

Fazzari, M., Hubbard R. G., C. (1988). Financing constraints and corporate investment, Brooking Papers on Economic Activity, 1: 141-195.

Friedman, M. (1970). The Social Responsibility of Business is to Increase its Profits. New York Times. 32-33.

He, G., Helen R. )2018(. Financial Constraints and Futures Stock Price Crash Risk; Working Paper. Durham: Durham University.

Hong, H., Jeffrey, K., Josem S. )2012(. Financial Constraints on Corporate Goodness. NBER Working Paper Series 18476.

Indriastuti, M., Naila, N., (2020(. Stock Return Movement in Indonesia Mining Companies. Advances in Economics, Business and Management Research, 115: 54–57.

Jacobs, B., Vinod, S., Ravi, S. )2010(. An empirical investigation of environmental performance and the market value of the firm, Journal of Operations Management, 28: 430–41.

Jegadeesh, N., Titman, S., (1993). Returns to buying winners and selling losers: implications for stock market efﬁciency, The Journal of Finance, 48 (1): 65-91.

Kaplan N. S., Zingales, L. (1997). Do Investment- Cash Flow Sensitivities Provide Useful Measures of Financing Constraints, Quarterly Journal of Economic, 112: 169-215.

Kelark, C.W., (2000), Examining the Relationship between Earning Management and expected stock returns, The Journal of Finance, 526-545.

Klassen, R., Curtis, Mc. )1996(. The impact of environmental management on firm performance, Management Science, 42: 1199–214.

Kotler, P. (1991). Marketing Management: Analysis, Planning and Control, 8th Edition, Englewood Cliffs, New Jersey, Prentice-Hall.

Keim, D.B, Stambaugh R.F., (1986). Predicting Returns in the Stock and Bond Market, Journal of Financial Economics, 17: 357-390.

Kothari, S.P., Shnken, J., Sloan, R.G. (1995). Another Look at the Cross-section of Expected Stock Returns, Journal of Finance, 50: 185-225.

Lakonishok, J., Shleifer, A., Vishny, R. (1994), Contrarian investment, extrapolation, and risk. Journal of Finance, 4 (5): 1541-1578.

Lanlan. R., Liyun, Z. (2019). Crash risk, institutional investors, and stock returns, North American Journal of Economics and Finance, 50: 100987.

Martinuzzi, A. (2012). How Public CSR Stimulate Responsible Competitiveness - apply theories of competitive advantage to classify policy instruments, Business School, 1-18.

Miralles-Q, M., Irene A., (2017(. Sustainable development, sustainability leadership, and firm valuation: Differences across Europe, Business Strategy and the Environment, 26: 1014–28.

Naseem. T., Faisal, Sh., Ghazanfar, A.A., Faisal, H. (2021). Corporate social responsibility engagement and firm performance in the Asia Pacific: The role of enterprise risk management, Corporate social responsibility and environmental management, 501-513.

Nekhili, M., Nagati, H., Chtioui, T., Rebolledo. C. (2017(. Corporate social responsibility disclosure and market value: Family versus nonfamily firms, Journal of Business Research, 77: 41-52.

Ng, C., A., Rezaee, Z. )2012(. Sustainability Disclosures and Cost of Capital. SSRN Electronic Journal.

Ng, C.A., Rezaee., Z., (2015(. Business sustainability performance and cost of equity capital, Journal of Corporate Finance, 34: 128-149.

Osoolian, M., Sadeghi Sharif, J., Khalili, M.A., (2017). Accruals, Cash Flow, and Operating Profitability in the Cross-Section of Stock Returns; Evidence from Tehran Stock Exchange, Quarterly Journal of the Iranian Accounting and Auditing Review, 24(4): 482-463.

Ohlson, J. A., (1995). Earnings, book values, and dividends in equity valuation, Contemporary Accounting Research, 11(2): 661−687.

Robin, A., & Wu, Q. (2014). Firm growth and the pricing of discretionary accruals, working paper, New York.

Saa- R., Jesus, Lamont, O. (2001). Financial constraints and stock return, Review of financial studies, 14: 524-554.

Saedi, R & Rezaeian, V. (2019). The Effect of the Manager’s Excessive Self-Confidence on Stock Returns and Unsystematic Stock Risk Given the Dual Role of Managing Director: Evidence from Tehran Stock Exchange, Financial Research Journal, 21(1): 79-100.

Rupley, K.H., Brown, D., Marshall, S., (2011). Multi-Stakeholder Governance: Impact on Environmental Disclosure. Working Paper, Portland State University, USA.

Samy, M., Odemilin, G., Bampton, R (2010). Corporate social responsibility: a strategy for sustainable business success. An analysis of 20 selected British companies, Journal of Corporate Governance, 10 (2): 203-217.

Sapriza, H., Lu, Z. (2004). A Neoclassical Model of Financially Constrained Stock Returns.

Shuoyuan, H, Ganapathi, N. (2020). Earnings acceleration and stock return, Journal of Accounting and Economics, 69 (1): 101238.

Stock, J., Watson M. W. (1989). New Indexes of coincident and Leading Economic Indicators, in O. J. Blanchard and S. Fischer (eds), NBER Macroeconomics Annual 1989, university of Chicago Press, Chicago III.