Sustainability membership and stock price: an empirical study using the Morningstar-SRI Index

Abstract

This article investigates how investors evaluate a membership of sustainability index. By using the data on the Morningstar Socially Responsible Investment Index from 2003 to 2010, we estimate the impact of inclusion on and exclusion from the Index on the stock price. Result shows that the inclusion on the index was evaluated significantly positively, while the removal from the index did not lead to a significant drop in share prices. We also found that the average cumulative abnormal returns were negative in the earlier years but positive in later years. This could be due to change in appreciation of the concept of corporate social responsibility by investors throughout the years.

Keywords:

• sustainability membership
• stock price
• event study
• Morningstar-SRI Index

JEL Classification::

• A13
• G14
• M14

Acknowledgements

The earlier versions of this article have been presented at seminars held at the University of Kitakyushu and Kogakuin University. Helpful comments from seminar participants are gratefully acknowledged. We also thank Morningstar Japan K.K. for providing us the data used in the analysis.