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    AFBC 2023 December 13th

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    AFBC 2023 December 13th

    Uploaded by

    din78flo
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    AFBC_2023_December_13th

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    9 views25 pages

    AFBC 2023 December 13th

    Uploaded by

    din78flo

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    © All Rights Reserved
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    of 25

    The 36th Australasian Finance and Banking Conference

    (December, 13th 2023, Sydney)

    Employment litigations and ESG report transparency


    雇用訴訟とESGレポートの透明性

    Van Hoanga , ThanhNguyenb, Marco Tedeschic , LinhPhamd


    a Montpellier Business School, France

    b Japan Securities Research Institute, Japan

    cUniversityPolytechnique of Marche, Italy

    dLakeForest College, IL, USA


    Why a research about
    employment litigations and ESG?
    vThe last decade witnessed a significant shift in the way businesses
    approach social responsibility.
    vDomestic and international firms face pressure from shareholders,
    local governments, international organizations, and other
    stakeholders to align their strategy with ESG issues.
    vFailures to meet expected ESG performance standards negatively
    influence corporate reputation and profitability.
    à Firm increases to communicate their sustainability initiatives via many
    different channels, ex: ESG reports.
    vOne might expect that this increase in ESG disclosure reduces
    information asymmetries and helps investors better understand
    the firms’ ESG efforts.
    v But do firms make an adequate and balanced reporting of their
    ESG performance?
    Why a research about
    employment litigations and ESG?
    lIn the ESG field, social (S) aspect has been less
    considered than the governance (G) and
    environmental (E) aspects though it is very
    important as it is directly related to human beings.
    lEmployment litigations are a clear measure of the
    social performance of a company.
    l Employment litigation shows the degree of conflictual
    relationship between employers and employees.
    l Employment litigation can influence firm’s motivation to
    disclose ESG information.
    Empirical works so far
    ØIn ESG area, most of previous studies investigated the relation
    between ESG and financial performance. Several authors analyzed
    the performance of ESG investing, ESG ratings, or ESG regulations
    (e.g., Cornell, 2021; Avramov et al., 2022; and Singhania et al.,
    2021).
    ØHackett et al. (2020) is the only study that investigates the direct
    link between ESG risks and employment litigations. According to
    the authors, ESG related litigations have increased strongly these
    later years.
    ØLitigation and capital structure (Unsal, 2021): Reducing short-term
    debt while increasing long-term debt.
    ØLitigation and reputation (Liu et al., 2016): Reducing the
    reputation of the CEO.
    ØLitigation and stock performance (Zuo et al., 2022): Greater risk of
    falling stock prices.
    • No available research about the effects of employment litigations on
    non-financial dimensions like ESG reporting transparency
    Research motivation
    • Few research analyze the impact of employee relations on
    ESG performance and disclosure.
    • This research fills the research gap by providing empirical
    evidence about the correlation between employment
    lawsuits at the firm level and the resulting ESG
    performance and disclosure.
    Research data
    vWe use the data sample of American firms in the S&P
    500 index.
    • US have been known as the country with the highest
    number of litigations.
    • Employee lawsuits in the US have risen 400% in the past 20
    years (Rayfield and Unsal, 2020).
    • 25% of all litigations in the federal court system are related
    to employment allegations (Unsal et al. ,2017). Annual
    direct litigation cost of Fortune 500 companies are huge.
    Research data
    vWe collect data for the companies of the S&P 500 index
    from 2013 to 2021, using Bloomberg terminal, including
    No. of litigations that a company has in 74 litigation
    categories.
    vThe result novelty is its database. We must enter the
    data by hand because we cannot download the historical
    data for this function, and the categories of disputes are
    not the same for companies
    vAmong the 74 categories of litigations à the most
    frequent categories of litigations: employment and
    patents.
    Research data
    vWe used the Bloomberg ESG disclosure score to
    gauge the transparency of firms’ ESG reports.
    vThe score ranges from 0 to 100, with 100
    representing maximum transparency.
    Research data
    vWe also collected ESG scores of MSCI of S&P 500
    firms during the 2013-2021 period.
    vBloomberg ESG score reflects ESG reporting
    transparency while MSCI ESG score measure a firm’s
    ESG risk management capacity.
    vConcretely, MSCI ESG scores measure how well a
    firm is managing ESG risks.
    • The higher is the score, the better the company is
    managing ESG risks and opportunities.
    Theory framework
    • Stakeholder theory
    ü Employees are major corporate stakeholders à building good employee
    relations can contribute to the firm value and vice versa.
    ü The company needs to respond to requests from its stakeholders, such as
    employees and investors, including requests for information.
    ü Firms with poor employee relations will report less on social aspects, resulting a
    lower social disclosure score

    • Information asymmetry theory


    ü Company management have more information than employees and investors,
    including information on litigation.
    àFirms with good employee relations should have few labor lawsuits, releasing
    more information about their ESG activities.
    àFirms facing an increase in employment litigations often disclose less
    social performance information, and compensating by releasing more
    governance or environmental information.
    Research hypotheses
    vHypothesis 1: Employment litigations and ESG disclosure
    H1a. A higher number of employment litigations is associated with a lower
    social disclosure score.
    H1b. A higher number of employment litigations is associated with a higher
    governance disclosure score.
    H1c. A higher number of employment litigations is associated with a higher
    environmental disclosure score.

    vHypothesis 2: Employment litigations and ESG performance


    H2a. A higher number of employment litigations is associated with a lower
    MSCI social score
    H2b. A higher number of employment litigations is associated with a higher
    MSCI governance score.
    H2c. A higher number of employment litigations is associated with a higher
    MSCI environmental score.
    Methodology framework
    uBaseline regression:

    uEmpirical results are obtained via panel data regressions,


    either fixed or random effects; reverse causality
    regression and several sensitivity analyses.
    Results 1: Baseline model
    Results 2: Reverse causality
    regression
    Robustness check 1: Size-adjusted
    number of employment litigations
    Robustness check 1: Lagged-1 values
    of the number of employment
    litigations
    Robustness check 2: with CSR variables
    Robustness check 2: with governance
    variables
    Robustness check 3: Sub-samples
    Light vs. Heavy Industries

    § Light industries include Consumer Discretionary, Consumer Staples,


    Healthcare, Financials, Information Technology, Communication
    Services, and Real Estates.
    § Heavy industries include the Energy, Materials, Industrials, and Utilities
    sectors.
    Robustness check 3: Sub-samples
    Conclusion (1)
    1. Empirical results show that employment
    litigations have a negative effect on both the
    social disclosure and social risk management
    scores.
    2. Effect of employment litigations on the
    environmental and governance pillars is positive.
    Conclusion (2)
    3. Corporate leverage, governance, CSR engagement,
    and institutional ownership, moderate the
    relationship between employment litigations and
    ESG scores.
    4. Heavy-industry firms have a different behavior
    compared to those in light industries.
    Research implication (1)
    1. Employee relations play a significant role in
    determining firm-level ESG performance, which
    implies the role of employees as one of the most
    important stakeholders in corporate governance.
    2. The results of this study emphasize the necessity of
    giving more attention to the social aspect of ESG, a
    sector often overlooked compared to environmental
    and governance factors.
    Research implication (2)
    3. This research promotes the creation of a social
    taxonomy to complement the existing
    environmental taxonomy. A social taxonomy would
    assist financial entities in directing capital toward
    firms meeting social standards and producing
    beneficial social impacts for employees and other
    stakeholders.
    4. It also indicates the need for including additional
    social metrics, such as the number of employment
    litigations, in the ESG landscape.
    Thank you for your attentions!

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