Saban Celik

Department of Business Administration, Katip Celebi University

Turkey

saban.celik@ikc.edu.tr

Linkage between company scores and stock returns

Bora Aktan

Department of Economics & Finance, University of Bahrain

Kingdom of Bahrain

gbora@uob.edu.bh

Manuela Tvaronaviciene

Department of Business Technologies & Entrepreneurship, 

Vilnius Gediminas Technical University

Lithuania

manuela.tvaronaviciene@vgtu.lt

Pelin Bengitoz

Department of International Trade and Finance, Yasar University

Turkey

pelin.bengitoz@yasar.edu.tr 

Abstract. Previous studies on company scores conducted at firm-level, generally concluded that there exists a positive relation between company scores and stock returns. Motivated by these studies, this study examines the relationship between company scores (Corporate Governance Score, Economic Score, Environmental Score, and Social Score) and stock returns, both at portfolio-level analysis and firm-level cross-sectional regressions. In portfolio-level analysis, stocks are sorted based on each company scores and quintile portfolio are formed with different levels of company scores. Then, existence and significance of raw returns and risk-adjusted returns difference between portfolios with the extreme company scores (portfolio 10 and portfolio 1) is tested. In addition, firm-level cross-sectional regression is performed to examine the significance of company scores effects with control variables. While portfolio-level analysis results indicate that there is no significant relation between company scores and stock returns; firm-level analysis indicates that economic, environmental, and social scores have effect on stock returns, however, significance and direction of these effects change, depending on the included control variables in the cross-sectional regression.

Received: June, 2017

1st Revision: September, 2017

Accepted: October, 2017

DOI: 10.14254/2071-8330.2017/10-4/17

JEL Classification: G11, G17, G30

Keywords: company scores, corporate governance, economic, environmental, social, stock return