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Does corporate sustainability impact firm profitability? Evidence from India

Management decision, 2018-07, Vol.56 (8), p.1734-1747 [Peer Reviewed Journal]

Emerald Publishing Limited ;Emerald Publishing Limited 2018 ;ISSN: 0025-1747 ;EISSN: 1758-6070 ;DOI: 10.1108/MD-04-2017-0381

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  • Title:
    Does corporate sustainability impact firm profitability? Evidence from India
  • Author: Bodhanwala, Shernaz ; Bodhanwala, Ruzbeh
  • Subjects: Brand loyalty ; Civil society ; Corporate profits ; Earnings per share ; Employees ; Equity ; Institutional investments ; Legitimacy ; Literature reviews ; Profitability ; Responsibilities ; Return on assets ; Shareholder activism ; Social responsibility ; Society ; Stakeholders ; Stock exchanges ; Stockholders ; Studies ; Sustainable development ; Theory
  • Is Part Of: Management decision, 2018-07, Vol.56 (8), p.1734-1747
  • Description: Purpose The purpose of this paper is to study whether corporate sustainability impacts profitability performance. Design/methodology/approach The sample under study consists of 58 Indian firms that are consistently a part of Thomson Reuters Asset 4 ESG database. An empirical multivariate panel data model is developed to analyse the impact of sustainability (environmental, social and governance) on firm profitability. Further, the study seeks to understand whether firms ranked high on sustainability parameters perform better compared to low-ranked firms. This has been tested by applying parametric t-test. Findings The study reveals a significant positive relationship between sustainability and firm performance measures (return on invested capital, return on equity, return on assets and earnings per share). Empirical evidence suggests that firms that practice remarkable sustainable development strategies report higher profitability and have substantially low gearing level. Research limitations/implications This study provides empirical support for the practitioners, policy makers and academicians emphasising strongly on the role played by deployment of sustainable environmental, social and governance efforts in enabling firms to achieve the profit maximisation objective. In the long term, strategies that take sustainability criteria into account have the capacity to create long-term value and provide firms with competitive advantage. The findings provide impetus to many mid- and large-capitalised Indian firms to initiate the adoption of sustainable measures in business policy formulation. The market valuation perception on sustainability practices followed by Indian firms leaves scope for future research. Originality/value Empirical evidence on the link between sustained sustainability efforts by corporates and their profitability from a developing nation context is limited. This paper provides much-needed evidence in the area of sustainability performance from India – one of the largest, rapidly developing economies in the world.
  • Publisher: London: Emerald Publishing Limited
  • Language: English
  • Identifier: ISSN: 0025-1747
    EISSN: 1758-6070
    DOI: 10.1108/MD-04-2017-0381
  • Source: ProQuest Central
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