Shareholder Engagement on Environmental,Social, and Governance Performance

We study behind-the-scenes investor activism promoting environmental, social, and governance (ESG) improvements by means of a proprietary dataset of a large international, socially responsible activist fund. We examine the activist’s target selection, forms of engagement, impact on ESG performance, drivers of success, and effects on the targets’ operations and value creation. Target firms are typically large and visible, perform well, and have high liquidity (stock turnover) and low ESG performance. Engagement induces ESG rating adjustments: firms with poor ex ante ESG ratings experience a ratings increase after complying with the activist’s demands, whereas firms with high ex ante ESG ratings experience a ratings decrease following the revelation of their ESG problems. Activism that is focused on environmental and social issues is more likely to succeed if targets are ESG-sensitive (i.e., they have a strong ex ante ESG profile). Successful engagements boost targets’ sales. Risk-adjusted excess stock returns (with four-factor adjustment and relative to a matched sample of non-engaged firms) of successful engagements outperform those of unsuccessful engagements by 2.7%. Results are especially strong for firms with low ex ante ESG scores. Specifically, targeted firms in the lowest ex ante ESG quartile outperform matched peers by 7.5% in the year after the end of the engagement. Our results thus suggest that the activism regarding corporate social responsibility generally improves ESG practices and corporate sales and is profitable to the activist. Taken together, we provide direct evidence that ethical investing and strong financial performance, both from the activist’s and the targeted firm’s perspective, can go hand-in-hand together.

     

Todd A. Diacon. Stringing Together a Nation: Candido Mariano da Silva Rondon and the Construction of a Modern Brazil, 1906-1930. Durham, N.C.: Duke University Press, 2004. xi + 228 pp. ISBN 0-8223-3210-8, $74.95 (cloth); 0-8223-3249-3, $21.95 (paper).

Biographical studies of military men seldom have much in commonwith analyses of either economic enterprise or society at large.But the present work by historian Todd A. Diacon clearly deservesa review in this journal under both these headings—onthe one hand, because it deals with two long-lasting nationalinitiatives related to the beginnings     

Youth and the WFSF: a generational approach

This paper examines the role of generational change in the emergence and continuity of the WFSF, generational change as situated through macro-historical perspectives, generational value shifts and their implications for the WFSF, and asymmetries and potentialities revealed through youth futures literature. It argues that the development of the WFSF in the longer term will require a generational approach that incorporates greater youth and student participation.     

The Evolution of the Tax Structure of a Reforming Transitional Economy: Hungary 1988–98

The paper analyses the revenue-raising, distributional and incentive effects of the personal tax system in Hungary from the start of the transitional tax reforms of 1988 to 1998, and shows that the tax structure has converged to an almost linear form similar to the more heavily taxed EU countries. The 1998 pension reform has reversed a trend increase in average and marginal tax rates but marginal rates still appear too high for a country wishing to encourage growth and employment creation.     

Changes in economic management systems in Hungary and other east European countries

Taking Hungary as an example, this article examines changes taking place in economic management systems in Eastern Europe. Developments in the political, institutional and economic sectors of Hungarian society are analysed, and current trends and problems are presented. Countries of Eastern Europe are classified into three categories in order to show how a need for change emerges under different constraints.