Do their reputations precede them? Stock market reaction to changes in corporate reputation in the context of sector and market maturity

Abstract

Our study extends the existing literature by examining whether the stock market’s maturity and the sector in which a company operates affect the relationship between an improvement in its corporate reputation and its stock returns. This event-study research is based on data from developed and emerging stock markets: the NYSE (US) and the WSE (Poland). The improvement in corporate reputation is proxied by its inclusion in a reputational index. We analysed inclusions in the RESPECT Index and WIG-ESG in Poland from 2009 to 2023. Then we compared the effects of inclusions on stock prices in the Polish market and the US market, in which the Dow Jones Sustainability Index (DJSI) was applied. Our findings suggest that in the emerging Polish market, significant reaction to inclusion in the index persists even when the sectoral circumstances are considered. Contrarily, in the developed US market, the strong positive effect of inclusion disappears in the sectoral context. Hence, significant returns may not be driven by the inclusion in a reputational index but rather result from other events that affect the particular sector.