Hello everyone and thank you for taking the time to even open this post.
I am already done with my analysis, however, I got an interesting result, which leaves me puzzled how to interpret it. I basically, investigate the relationship between companies' sustainability performance and their financial performance. Dependent variables of interest are the market cap and stock returns, the independent - different sustainability metrics (e,s,g,esg...). Observed Yearly. Lev, Liq, Beta, asset growth, sales growth are control variables.
The model applied is FE also confirmed by the hausman test. Long story short, I receive stat significant results for the relationship between the above-mentioned. However, the coefficients are with different signs, meaning that increasing sustainability indicates increasing mcap, but increasing sustianbility indicates reducing stock returns. I am struggling logically to justify this result, as I expect mcap and returns to grow in the same direction as they are both dependent on the stock price.
Some of the tests I ran indicate no hetereskedasticity, no multicolinearity, stationary data. I attached the data file to this post. The code that I ran is below and I am sure it is mega simple for you.
I will be happy to receive whatever suggestions you might have on what can be the reason for this conundrum. Some explanations that I came up with are - date of data collection matters, no diff on industry level, low share price makes volatile returns, bias for large caps that only grow up. It can be argued if the results are also economically insignificant
Thank you!
Petar
I am already done with my analysis, however, I got an interesting result, which leaves me puzzled how to interpret it. I basically, investigate the relationship between companies' sustainability performance and their financial performance. Dependent variables of interest are the market cap and stock returns, the independent - different sustainability metrics (e,s,g,esg...). Observed Yearly. Lev, Liq, Beta, asset growth, sales growth are control variables.
The model applied is FE also confirmed by the hausman test. Long story short, I receive stat significant results for the relationship between the above-mentioned. However, the coefficients are with different signs, meaning that increasing sustainability indicates increasing mcap, but increasing sustianbility indicates reducing stock returns. I am struggling logically to justify this result, as I expect mcap and returns to grow in the same direction as they are both dependent on the stock price.
Some of the tests I ran indicate no hetereskedasticity, no multicolinearity, stationary data. I attached the data file to this post. The code that I ran is below and I am sure it is mega simple for you.
I will be happy to receive whatever suggestions you might have on what can be the reason for this conundrum. Some explanations that I came up with are - date of data collection matters, no diff on industry level, low share price makes volatile returns, bias for large caps that only grow up. It can be argued if the results are also economically insignificant
Thank you!
Petar
Code:
egen id = group(blgname) xtset id esgyear, yearly xtreg marketcap leverage liquidity beta assetgrowth salesgrowth esg, fe vce(cluster id) xtreg return leverage liquidity beta assetgrowth salesgrowth esg, fe vce(cluster id)
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