Environmental, Social, and Governance Disclosure and Financial Performance: Evidence From the Rail Industry

Environmental, Social, and Governance Disclosure and Financial Performance: Evidence From the Rail Industry

İsmail Çağrı Özcan (Ankara Yıldırım Beyazıt University, Turkey)
DOI: 10.4018/978-1-7998-4637-6.ch015
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Abstract

The environmental, social, and governance (ESG) disclosure performance of the companies is becoming a major criterion for significant stakeholders like shareholders, creditors, and customers. In line with the increasing interest in ESG activities, a growing respective literature emerges. Despite this evolving attraction, the ESG aspects of the transport industry in general, and the rail industry in particular remain relatively untouched except for a small body of research on airlines. This study aims at filling this gap by analyzing how the ESG disclosure performance of the rail companies affect their financial performance, which the authors measure by return on assets (ROA), return on equity (ROE), and Tobin's Q. Based on a sample of 35 rail companies from nine countries over the 2007-2017 period, the analyses show that ESG disclosure performance has a positive and statistically significant association with the ROA of the rail companies.
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2. Literature Review, Methodology, And Data

The ESG disclosure activities of the rail companies remain mostly untouched in the relevant literature. A quick review reveals only two related studies. Özcan (2018) examines the determinants of governance disclosure of the publicly traded rail companies. His findings indicate that the board size, the representation of outside directors, financial leverage, and firm size have positive association with governance disclosure whereas rail companies established in civil law countries tend to underperform their counterparts from common law countries in term of governance disclosure. In a more in-depth study, Özcan (2020) documents that government ownership has a positive effect on the ESG disclosure scores of the publicly traded rail companies. The goal of this chapter is to contribute to the literature by filling this gap. Particularly, we intend to explore the impact of ESG disclosure performance of the publicly traded rail companies on their profitability and market valuation. Our model to test these associations is as follows:

Y = f (ESG Disclosure, Growth, Size, Leverage, Tangibility)(1)

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