C10 - Econometric and Statistical Methods and Methodology: GeneralReturn

This article examines whether investing in ESG impacts banks’ stock returns, aiming to illustrate the value generated by ESG investment in the MSCI Emerging Markets Index. The fiscal year-end data of thirty-five financial companies within the Index, covering the period from December 31, 2015, to December 31, 2022, have been utilised. The analysis employs a pooled panel regression model utilising robust least squares estimation. Firm-specific and market-specific variables are used as independent variables. We have observed a significant positive direct relationship between the social pillar score and stock returns. Banks may initiate investments in social pillars in the Index. In addition, firm-specific variables such as market capitalisation, return on equity, capital adequacy, and price-earnings ratio influence the relationship between ESG pillar scores and stock returns. We recommend that portfolio managers closely monitor improvements in ESG pillar scores alongside firm-specific variables to predict banks’ stock returns in the index.

Although venture capital is considered crucial for promoting economic development and innovation, not much has been done regarding the use of complex financing contracts in venture capital backed investments. In this study we investigate the use of convertible securities and control rights covenants for a sample of 15 Portuguese venture capital firms. We use a relatively new methodology in business and management sciences - fuzzy set Qualitative Comparative Analysis - that considers both quantitative and qualitative factors for obtaining a solution that best fits the empirical data. Our results show that the use of convertible securities is affected by the anticipated severity of double-sided moral hazard problems. On the other hand, only a weak support is provided to the agency predictions regarding the use of control right covenants. Interestingly, the results reveal that convertible securities, unlike control rights covenants, are the most apt instruments to reduce costly double-sided incentive problems of a venture capital relationship.