EAST DELTA UNIVERSITY

Assignment on:
Financial Decision Making

Topic:
Technological Forecasting & Social Change

Submitted To:
DR. MOHAMMAD SHAKIL

Lecturer

EDU

Submitted By:
Durjoy Sharma Joy- 212005906

Rifat Yasmin - 212004406

Aminul Islam Sakib - 212005806

Submission Date: 27-06-2021

Niccolò Nirinoa, Gabriele Santoroa, Nicola Migliettaa, Roberto Quaglia

The literature is based on the importance of Corporate Social Responsibility and it’s necessity to maintain
the reputation of running companies. We still know a little about the controversies which are related to
CSR and their impacts on firm performance. So, it is clear that the study highlights the impact of
corporate controversies on financial performance of a firm and at the same time it focuses on the positive
moderating role of ESG practices. It includes the database of 356 European listed companies, where
through a graph it shows the negative relation between the controversy and firm performance.
Controversy creates negative impact that can misguide stakeholders. So, ESG practices are important for
addressing stakeholders’ needs. The study also indicates the necessity of a good management which can
identify the problems which are creating controversies and the way to solve them to maintain a moderate
firm performance. The main perspective of ESG should not be solving the controversies but it will be
maintained to avoid controversies.

STRENGTH OF THE ARTICLE:

The article is clearly focusing on the concept of Corporate Social Responsibility. The best thing that
described here is the clear conceptualization of the highlighted topic and it’s necessity for firm
production. Corporate social responsibility has become a priority for companies which engage in CSR
initiatives to increase their competitiveness, to support their reputation in the eyes of different
stakeholders, to meet the laws and regulations of the countries in which they operate, and to be in line
with established corporate values. We find here the importance of ESG factors which become prominent
for business strategies.
There is evidence in the literature about the positive impact of ESG efforts and CSR strategies on
company performance, such as financial performance, employee commitment, innovation and corporate
reputation. Reputation is undoubtedly the most promising factor of business.
The article describes the concept of business controversies, how they arise and make their impact on the
production. According to the literature, controversy arises when a firm is involved in actions or incidents
that can adversely impact its stakeholders and the environment. It clears the relation between corporate
controversies and financial performance, and proposing the moderating role of ESG practices alleviate the
negative effects of controversies on performance.
CSR has a long history, which evolved with the development of business and led to emerging society
needs. That’s why CSR becomes a field of research and a subject focused by writers of the corporate-
finance literature, which is justified in this article.
One of the most important topic of this article is the right of the stakeholders. A negative perception of
the company by stakeholders can lead to various consequences, such as lawsuits, revenue losses,
increased financial risk, and an increase in the cost of debt.
The article describes the moderating effect of ESG practices in the controversy and financial performance
relationship. Based on institutional perspective, companies are engaged in environmental and social
actions due to the pressure of stakeholders. So it is clear that this literature has a clear view for
stakeholders and their rights and power.
The research design is based on an inductive quantitative methodology in order to test the relationship
among corporate controversies, ESG practices, and financial performance.
The article includes the research result based on the stoxx Europe 600 index in which includes the 600
largest companies listed in Europe. Due to different accounting standards, The writer of this article
decided to exclude banks and insurance companies. The writers found that banks and insurance
companies follows different rules when they write their statements. So, they decided to neglect the Banks
and Insurance in this article which make it more real.
The writers use different variables to complete the concept of performance in order to explore potential
differences. They use Tobnin’s Q ratio which is a measure widely applied in management and financial
fields of research when assessing the impact of sustainable practices within business.
The article includes the concept of controversy score and ESG to measure the data of controversy and
sustainability. It used the data of 356 listed companies of Europe which make this article more reliable.

WEAKNESS OF THE ARTICLE:

Though the article defines CSR so well, here is some misconception. Like, the writer focused on the CSR
as the main controller of firm production. But, here are some other factors which are highly
responsible for damaging production. Like natural problem, shortage of raw materials, lack of
labours, shortage in supply chain and weak co-ordination in the full process of production to supply.

Besides, here is a concept, controversy, which is described as a danger for firm reputation. But,
controversy cannot produce bad impact all the time. Sometimes, it can produce sympathy in the
consumer’s mind which can help to make a good profit and will organize a firm to be more friendly
for consumers.
Here the writers want to show that stakeholders are so sensitive in the case of CSR. But it is so clear
that every stoke holder also wants a good profit. So, it is not fare to say that they are very much
focused about Corporate Social Responsibility.
The literature includes only three different variables of performance in order to explore potential
differences. Besides Tobin’s Q ratio, controversy score and ESG score, they should include the
production ability and effective social policies in their literature.
ESG practice is so effective for a company’s production and profit. But, it is not the most important cause
of high production because it depends on funding and fund must be collected from the profit the firm has
achieved from it’s business.
Hence, we can say that the article is rich with informations but at the same time it has some
misconception mentioned above.

RECOMMENDATION
The article tries to analyze the impact of controversies on financial performance. For that they developed
four models. Here models 1, 2 and 3 are based on three different performance measures in order to
capture different potential performance. The article is not clear about the market performance .It should
be more clear. In model 2 and model 3 the article suggests that controversies have no significant impact
on account measures. But in model 1 and model 4 we find moderating effect of ESG practices in the
controversy-performance relationship.

I think this article has a clear view about the ESG and it’s relationship with financial profit. But I
recommend to include the fields which represent the value of ESG. Here ESG is bounded only with the
laws and some indicated social responsibilities. But ESG includes a variety of work fields. The article can
be rich with that.
Overall the article shows a graphical presentation based on reliable information on the notes of financial
controversies and financial performance. Though here is some conflict, it shows that ESG has a good
impact on overall reputation which helps to increase the company production. And increase of production
stimulates the business.

Thank you!