Search

This paper presents and illustrates the concept of sustainable corporate finance. Sustainability is a well-established concept in the disciplines of environmental economics and business ethics. The paper uses a broader definition of what is called “the firm” to pinpoint sustainability to the finance literature. The concept of sustainable finance is compared to traditional and behavioral finance. Four criteria are used to systematically analyze the basic differences. First on the order is the theory of the firm: the definition of the firm is reconsidered by integrating behavioral aspects and by expanding financial analysis to a three-dimensional goal setting. Secondly, a closer look is taken at the assumed behavior of economic agents and its consequences for the applied methodology. The shareholders paradigm is discussed against the background of growing stakeholder importance. Finally, the fourth criterion deals with the different ethical framework and its implication for financial behavior.

This paper assesses the relationship between corporate social responsibility (CSR) and downside equity tail risk, a field of research that has so far been neglected. Using global equities data over the period of January 2003 to December 2011, inclusive, the downside tail risk of each company is estimated using techniques of extreme value theory and CSR is approached using stakeholder theory. Our findings show a significant relationship between certain aspects of CSR and downside tail risk. The nature of the relationship differs across region, CSR category and time. Furthermore, the relationships we found are sequential, which makes a causal link between CSR and tail risk plausible.