טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentKeisar Rebrcca Ruth
SubjectIs Social-Environmental Policy Also Profitable?
An Examination Using Stock Price Behavior in
Israel
DepartmentDepartment of Architecture and Town Planning
Supervisor Dr. Danny Ben-Shahar
Full Thesis text - in Hebrew Full thesis text - Hebrew Version


Abstract

We examine the relationship between the socio-environmental policy that Israeli firms adopt and its relationship to their corporate profit. In particular, we examine whether there is a relationship between socio-environmental responsibilities of Israeli corporations to the rate of return on their stock. The main objectives of the research are twofold: (1) estimate the relationship between the firms' score on a Socially Responsible Investment (SRI) index, and the return on the corporations stock; (2) estimate the relationship between the holdings of the largest shareholder and the firms' score on the Socially Responsible Investment index. The latter is divided into three tests. First, we estimate the relationship between the firm's score in the 'Maala' index—Israel’s stock index for socio-environmental responsibility—and its stock return for the period 2005-2007. We repeat the analysis for each year between 2005 and 2007 separately. We then particularly focus on the stock return around the publication of the 'Maala' index (the twenty days around the publication day - i.e., ten days pre- and post-publication) between the years 2005 and 2007. Again, we repeat the analysis for each year between 2005 and 2007 separately. Finally, we examine the relationship between the annual return on the firms' stock and each of the categories presented in the 'Maala' index separately. The different categories of the 'Maala' index include: Business Ethics, Workplace and Human Rights, Community Investment, and Environment. As in the first two tests, this test is repeated for each year between 2005 and 2007 separately. We find that there is no relationship between the firm's social-environmental policy (as it appears by the 'Maala' score) and the return on its stock. This result is robust to variations in the sample period and variations in the examined 'Maala' categories. We further find a significant negative relationship between the relative holdings of the largest shareholder and the 'Maala' score, i.e., the larger the holding of the largest shareholder, the lower the score of the firm in the 'Maala' index (this result, to the best of our knowledge, has not yet been examined in the literature). It follows from our evidence that there is no economic incentive for firms to embrace a policy of socio-environmental responsibility in Israel. Yet, corporations that do implement a policy of socio-environmental responsibility should not worry that investors might "punish" them for their voluntarily adopted policy.