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undergraduate thesis: Linkage between ESG ratings and corporate financial performance of Hong Kong listed real estate stocks
Title | Linkage between ESG ratings and corporate financial performance of Hong Kong listed real estate stocks |
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Authors | |
Issue Date | 2022 |
Publisher | The University of Hong Kong (Pokfulam, Hong Kong) |
Citation | Yam, T. F. [任達輝]. (2022). Linkage between ESG ratings and corporate financial performance of Hong Kong listed real estate stocks. (Thesis). University of Hong Kong, Pokfulam, Hong Kong SAR. |
Abstract | This study examines the relationship between ESG performance and the Corporate Financial Performance (CFP) of Hong Kong Listed Real Estate Stocks. The ESG performance is measured by ESG Ratings, and Refinitiv ESG Score is selected in this study. Two accounting-based measures, Return on Assets (ROA) and Return on Equity (ROE) are applied in the study together with two market-based measures, Tobin’s Q (TQ) and Stock Return (SR), to serve as the indicators of Corporate Financial Performance.
With the aim to investigate the ESG-CFP relationship in the real estate industry, panel data from 21 Listed Real Estate Stocks in the Hong Kong market over the period 2010-2020 are collected annually for this study. The sample size is constrained by the availability of data since not many companies have been included in ESG Ratings published by rating agencies. A Fixed Effect Model is applied in running the panel data regression for the study based on the results from the Hausman Test conducted.
The empirical results suggest that overall ESG performance has a null significant influence on the CFP on real estate stocks. This indicates that the ESG combined score is not a good benchmark indicator for investors to review as its performance could not impact the CFP on a company. This is probably because the three pillars of ESG, Environmental (ENV), Social (SOC), and Governance (GOV) have demonstrated different directions of influence on the CFP and hence messed up the linkage.
By breaking down the ESG performance into the performance of its three pillars, an inverse U-shaped relationship is found between ENV and CFP. This implies that improvement in environmental performance could benefit the CFP at a lower level of investment while adverse effects occurred at a higher level of investment. In contrast to the observations seen in ENV-CFP, an opposite pattern, a U-shaped relationship is discovered between SOC and CFP. This induces that increasing social performance could only bring a positive impact on CFP at a higher level of investment but deteriorate the CFP at a lower level of investment. Similar to overall ESG performance, a null significant linkage is found in the GOV-ESG relationship. Doubts remain to exist on financial benefits brought by an enhancement in corporate governance.
The study has extended the research on ESG-CFP linkage in Hong Kong, specifically in the real estate industry. In addition, this is also the first study to look at the existence of a non-linear relationship between ESG and CFP in the real estate industry. Despite the ESG development in Hong Kong is relatively lagged behind compared with Europe and America, the empirical results provided good evidence that ESG performance, which is a non-financial factor, is indeed worth investors or companies considering in evaluating the CFP of the real estate companies in Hong Kong. Investors are advised to particularly focus on the environmental performance and social performance of a company, which have been proved a significant linkage with CFP.
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Degree | Bachelor of Science in Surveying |
Subject | Stocks - China - Hong Kong Real estate business - China - Hong Kong |
Persistent Identifier | http://hdl.handle.net/10722/315422 |
DC Field | Value | Language |
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dc.contributor.author | Yam, Tat Fai | - |
dc.contributor.author | 任達輝 | - |
dc.date.accessioned | 2022-08-05T12:59:21Z | - |
dc.date.available | 2022-08-05T12:59:21Z | - |
dc.date.issued | 2022 | - |
dc.identifier.citation | Yam, T. F. [任達輝]. (2022). Linkage between ESG ratings and corporate financial performance of Hong Kong listed real estate stocks. (Thesis). University of Hong Kong, Pokfulam, Hong Kong SAR. | - |
dc.identifier.uri | http://hdl.handle.net/10722/315422 | - |
dc.description.abstract | This study examines the relationship between ESG performance and the Corporate Financial Performance (CFP) of Hong Kong Listed Real Estate Stocks. The ESG performance is measured by ESG Ratings, and Refinitiv ESG Score is selected in this study. Two accounting-based measures, Return on Assets (ROA) and Return on Equity (ROE) are applied in the study together with two market-based measures, Tobin’s Q (TQ) and Stock Return (SR), to serve as the indicators of Corporate Financial Performance. With the aim to investigate the ESG-CFP relationship in the real estate industry, panel data from 21 Listed Real Estate Stocks in the Hong Kong market over the period 2010-2020 are collected annually for this study. The sample size is constrained by the availability of data since not many companies have been included in ESG Ratings published by rating agencies. A Fixed Effect Model is applied in running the panel data regression for the study based on the results from the Hausman Test conducted. The empirical results suggest that overall ESG performance has a null significant influence on the CFP on real estate stocks. This indicates that the ESG combined score is not a good benchmark indicator for investors to review as its performance could not impact the CFP on a company. This is probably because the three pillars of ESG, Environmental (ENV), Social (SOC), and Governance (GOV) have demonstrated different directions of influence on the CFP and hence messed up the linkage. By breaking down the ESG performance into the performance of its three pillars, an inverse U-shaped relationship is found between ENV and CFP. This implies that improvement in environmental performance could benefit the CFP at a lower level of investment while adverse effects occurred at a higher level of investment. In contrast to the observations seen in ENV-CFP, an opposite pattern, a U-shaped relationship is discovered between SOC and CFP. This induces that increasing social performance could only bring a positive impact on CFP at a higher level of investment but deteriorate the CFP at a lower level of investment. Similar to overall ESG performance, a null significant linkage is found in the GOV-ESG relationship. Doubts remain to exist on financial benefits brought by an enhancement in corporate governance. The study has extended the research on ESG-CFP linkage in Hong Kong, specifically in the real estate industry. In addition, this is also the first study to look at the existence of a non-linear relationship between ESG and CFP in the real estate industry. Despite the ESG development in Hong Kong is relatively lagged behind compared with Europe and America, the empirical results provided good evidence that ESG performance, which is a non-financial factor, is indeed worth investors or companies considering in evaluating the CFP of the real estate companies in Hong Kong. Investors are advised to particularly focus on the environmental performance and social performance of a company, which have been proved a significant linkage with CFP. | - |
dc.language | eng | - |
dc.publisher | The University of Hong Kong (Pokfulam, Hong Kong) | - |
dc.rights | The author retains all proprietary rights, (such as patent rights) and the right to use in future works. | - |
dc.rights | This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License. | - |
dc.subject.lcsh | Stocks - China - Hong Kong | - |
dc.subject.lcsh | Real estate business - China - Hong Kong | - |
dc.title | Linkage between ESG ratings and corporate financial performance of Hong Kong listed real estate stocks | - |
dc.type | UG_Thesis | - |
dc.description.thesisname | Bachelor of Science in Surveying | - |
dc.description.thesislevel | Bachelor | - |
dc.description.nature | published_or_final_version | - |
dc.date.hkucongregation | 2022 | - |
dc.identifier.mmsid | 991044569803403414 | - |