Shareholder value from sustainability leadership: Comparing valuation ratios within industry groups

Timothy S. Clark, David S. Allen

Research output: Contribution to journalArticlepeer-review

3 Scopus citations


Clear, empirical answers to the general question "Does it pay to be good?" have eluded researchers. We argue this stems from widely varied financial metrics used as dependent variables, which tend to fail to distinguish an individual firm's periodic results from trends affecting the overall economy, specific industry, or peer group of comparable companies. In this study, we avoid those weaknesses by focusing on relative valuation, where valuation ratios across relevant peer groups of firms are compared to reflect relative shareholder value per unit of each financial metric. We focus on firms that have been included in the Dow Jones Sustainability Index, as a proxy for sustainability leadership accounting for social, economic, and environmental performance. We then compare valuation metrics between those leading firms and their non-distinguished peers. Sustainability leaders are found to have significantly higher multiples in key valuation ratios, suggesting that investments incurred to attain sustainability leadership are returned in the form of relatively higher valuation. Therefore, shareholder wealth maximization is shown to be associated with sustainability leadership.

Original languageEnglish (US)
Pages (from-to)108-117
Number of pages10
JournalInternational Research Journal of Finance and Economics
StatePublished - Apr 2012


  • Sustainability leadership
  • Valuation ratios

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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