The impact of residual sustainability on stock behaviors– A quantitative study on Swedish listed companies

Abstract: Nowadays, the value creation and measurement of the economic performances have changed from traditional ways of maximizing shareholder’s wealth to maximizing stakeholder’s wealth. Companies are responsible for creating value not only for their organizationsbut also for the society as a whole because CSR issues attract a global attention and most countries are urging the companies to follow sustainable ways. In Nordic countries, Sweden is well known as a pioneer for sustainability and all the CSR activities aredisclosed in Sustainability or CSR reports. Although there are many researches related to the impacts of sustainability reporting and CSR performance on firm’s growth or financial performance, a research examining the relationship between CSR performance and stock price volatility of the companies cannot be found. Therefore, we aim to investigate the impact of the residual sustainability which is one of the dimensions to measure sustainability, on stock behaviorsand formulated the research question:What is the impact of Residual Sustainability on stock behaviors?The purpose of the thesis is to find out how residual sustainability is allocated in terms of monetary value, and whether this allocation of resources creates value for the shareholders or not. This leads to investigate the stock price volatility against the size of residual sustainability of the companies listed on Nasdaq OMX Stockholm. In adopting research methodology, we followed functionalist paradigm through the assumptions: regulatory side undersociology, objectivism under ontology, positivism under epistemology, and positivism under axiologybecause we consider that companies are rational entities and aim to provide rational explanation of whether residual sustainability haspossible impacts to stock behaviors or not. We answered the research question by adopting deductive approach. Based on exploratory and explanatory research, we designed archival research method to perform quantitative analysis in a cross-sectional study. We developed our theoretical framework based on Sustainable Enterprise Theory, Legitimacy Theory, Shareholder Theory, Stakeholder Theory and Resource-based view Theory and the analysis was conducted and discussed by relating with those theories. We extracted the data from EikonDataStream for years 2015, 2016 and 2017. We used different statistical methods to test normality of our variables, and run the tests with multilinear regression model to address our research question. The result indicates that there is no statistically significant relationship between residual sustainability and stock behaviorswithin the specific time frame. The possible reason is that the stock price is well adjusted before creating stock volatility because the sustainability in Sweden is likely to be predicted for the future. Secondly, most of the Swedish companies are fully utilized the residual fund for innovation, talent retention, research and development and other purposes and thereby it may create delay adjustment on stock price until value creation for organizationis generated.