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Leading or lagging indicators of risk? The informational content of extra-financial performance scores

Abstract : This study investigates the informational content of extra-financial agency scoring by examining the relationship between firm beta and extra-financial performance score upgrades and downgrades. Specifically, we study the variations in the extra-financial score of 266 Canadian corporations between 2007 and 2012 with a conditional model. We find no evidence that changes in firm beta precede changes in extra-financial scores. Rather, our results suggest that a firm’s systematic risk increases following a downgrade of its extra-financial performance. In terms of score upgrades, the overall effect is not significant. However, score upgrades for firms with already-high scores predict higher systematic risk, while score upgrades for firms with low scores predict lower systematic risk. These results suggest that extra-financial scores are informational and can be useful to portfolio managers, notably for their risk management strategies.
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https://hal-paris1.archives-ouvertes.fr/hal-03690817
Contributor : Roland Gillet Connect in order to contact the contributor
Submitted on : Wednesday, June 8, 2022 - 3:53:28 PM
Last modification on : Wednesday, September 28, 2022 - 4:19:11 PM

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Roland Gillet, Amos Sodjahin, Claudia Champagne, Frank Coggins. Leading or lagging indicators of risk? The informational content of extra-financial performance scores. Journal of Asset Management, 2017, 18 (5), pp.347-370. ⟨10.1057/s41260-016-0039-y⟩. ⟨hal-03690817⟩

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