Adding Sustainable Value: Linkages Between Growth, Governance And Social Responsibility

Abstract

Key performance indicators such as high EPS and revenue growth are frequently used to evaluate high quality securities from successful companies.  Characterized as “growth” stock, these stocks are accompanied by high PE and PB ratios, indicating compelling potential for future capital appreciation. However, relentless stress on high growth alone has its disadvantages, and research has clearly shown that growth by itself is not a sufficient condition for long-term sustainable value.  Stakeholders driving company value also expect a strong underlying framework of accountability, transparency and fairness.  Concepts of socially responsible investing add societal expectations of commitment to employees, consumers and the environment.  This study explores the relationship between growth, corporate governance and corporate social responsibility as a possible basis for explaining long-term value.  Initial results indicate that these growth companies tend to have robust financial metrics but with higher risk, as indicated by financial metrics and a lower score in governance policies, but display insignificant variances on social responsibility factors.