Sustainable Development and Corporate Reputation: what impact on risk-adjusted profitability?

This study responds to the need for deeper empirical investigations on the relationship between Corporate Social Responsibility (CSR) and Corporate Reputation (CR), and their combined effect on firms’ performance. To address this question, the current study first focuses on the relations between the environmental engagement and CR and, then, investigates the link between CR and risk-adjusted profitability. More specifically, by using a sample of world most reputed firms, after correcting for endogeneity bias, this study documents the positive impact of the environmental engagement on CR, and, in turn, the positive effect of CR on firms’ profitability. Empirical evidence suggests that, the more firms are environmentally responsive, the more they are able to accrual reputational capital that improves firms’ risk-adjusted performance. Results from this study confirm that CSR is a co-specialized asset which increases the value of an intangible asset such as CR. The latter behaves as the missing link between environmental engagement and firm’s profitability