Is Eco-Friendly Attitude a Determinant of Share Price Return? – A Case Study

20 Pages Posted: 12 Jun 2017

See all articles by Dr. Sumit Kumar Maji

Dr. Sumit Kumar Maji

University of Burdwan - Department of Commerce

Ashoke Mondal

West Bengal State University

Date Written: September 2015


Introduction of the Research Problem: Considering the intense problem of perpetual environment deterioration and global warming, it is of paramount importance that the corporate houses around the globe should take care of their social responsibilities and play their part in safe guarding the environment. The Eco-centric business philosophy has terminated the very existence of the ego-centric or homocentric business philosophy. The scholars around the world are in the search of an alternative viable and sustainable business model to make this world a better place to live for the next generation. Thus, protection of the environment should be seen as one of the most vital components of core Corporate Social Responsibility strategy of a company. In Indian context some of the companies listed in BSE are executing their share of duties towards protecting the environment. Now whether these companies enjoy positive market response from the investors or not that is an important issue to be addressed. There are a good number of literatures on the issue of determinants of stock market return. Some of the noteworthy explanatory variables that have direct influence on the stock market return of differnt economy are R&D expenditure to market value of equity ratio, debt ratio, planned R&D increases, and growth opportunities (Szewczyk et al and Zantout, 1996; Zan- tout, 1997; Chan et al 2001), book-market value of equity ratio (B/MV) and firm size, measured by the market value of equity (MVE), P/E Ratio (Fama & French, 1995). firm size, measured by the market value of equity (MVE), P/E Ratio (Lev, 1989), firm size, P/E Ratio (Reinganum, 1981), D/E Ratio, Size, Sales/Price Ratio, BV/MV Ratio (Barbee et al, 1996), Firm Size, Book-to-Market Equity (Drew, 2003), Beta, size, book to market value, Monetary policy (Jensen & Mercer, 2002), Size. Book to market equity (Chan et al, 1995), systematic Risk, size, book to market value, monetary policy (Jenson et al., 1997), Beta, Book value to market value (Kothari et al., 1995).However there is a scanty of studies especially in Indian context which had tried to make out whether this eco-friendly attitude of the companies is a determinant of share price return or not.

Objectives and Methodology: Thus in order to fill up the research gap in the literature, we have made modest attempt to compare the risk and returns of the eco-friendly companies with that of Control companies and to unearth the determinants of the share price returns. In nutshell the study has focused to look into the impact of being an eco-friendly company on share price return. Day to day share price of the different companies and indices for the period from 22/02/2012 to 31/08/2014 and the data relating to the different variables belonging to the Financial Year 2013-14 has been collected from the reliable secondary sources such as Capitaline Corporate Database 2000 of Capital Market Publishers Pvt. Ltd., Mumbai, official websites of BSE and other popular market information providing websites. To deal with the objectives control company (CC) methodology is adopted. In selecting the CC Paired t-test has been used. In order to identify the CC the asset size, turnover or Asset Turnover Ratios of companies has been used as the indicative parameter. If there exists no significant difference between the average values of the asset size or turnover or ATR, of Greenex Companies and other companies belonging to the same industry, that company is selected as CC. The different variables used in the study were Yearly Return (YR), Size of a firm indicated by natural logarithm of Sales Revenue, Growth of firm measured by year to year growth of assets, Dividend Payout Ratio, Price-Earning Ratio, Return on Net Worth, Price to Book Value Ratio, Foreign Institutional Stake in a Company and dummy variable representing the eco-friendly attitude of the company. Other Simple statistical tools such as measures of central tendency, absolute and relative measures of dispersion, correlation analysis, OLS regression analysis etc has been used to achieve the goal of the study.

Empirical Result: The analysis of the yearly return showed that more than half of the ecofriendly companies have underperformed as compared to that of the benchmark indices such as BSE30, BSE Auto, BSE FMCG, BSE Metal, BSE Pharma, BSE Teck, BSE HC, BSE Power, BSE CD and control companies. The analysis of the simple correlation coefficients between the dependent variable i.e. YR and the independent variables suggested that leverage indicated by debt-equity ratio and the dummy variable had negative relationship with YR where as all the other variables were found to be positively associated with YR. A moderate degree of statistically significant positive correlation was observed between the dependent variable and P/B& FII Stake. The correlation amongst and between the explanatory variables are very useful in identifying any sort of Multicolineraity problem. One of the easy ways to find out Multicolineraity problem is to trace Variance Inflation Factor (VIF). When significant Multicolineraity issues exist, the VIF will be very large close to 10 (Hair, Anderson, Tatham, & Black, 1995) for the variables involved. The outcome of the study showed that for no independent variable the VIF is even close to 5 thus there exists no Multicolineraity problem. The in depth analysis of the regression analysis showed that the investment decision of the investors are often guided by the host of company specific, industry specific and economy specific factors and not by sustainable business practices undertaken by those companies. The major determinant having positive implication on the share price return found out in the study were P/B Ratio, Firm Growth & FII Stake. Interestingly on the other side, the outcome of the study exposed that the D/E Ratio and eco-friendly attitude having negative impact on the share price return. The study projected no evidence of the fact that the investment decision of the investing community gets influenced by the environment friendly measures undertaken by the firms. Precisely the investors do not consider the environment related issues at all before selecting the share to invest. Considering the time period and number of companies used there is enough scope to extend the present study to get more concrete results.

Keywords: Eco Friendly; Eco-Centric; Corporate Social Responsibility; Global warming; BSE; Share price return; control companies.

Suggested Citation

Maji, Dr. Sumit Kumar and Mondal, Ashoke, Is Eco-Friendly Attitude a Determinant of Share Price Return? – A Case Study (September 2015). Available at SSRN: or

Dr. Sumit Kumar Maji (Contact Author)

University of Burdwan - Department of Commerce ( email )

Department of Commerce
Burdwan, IN West Bengal 713104
+919475939809 (Phone)

Ashoke Mondal

West Bengal State University ( email )

Berunan Pukuria, Barasat
North 24 Parganas
Kolkata, West Bengal 700126

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