The usefulness of the BrF_Score for firms not adherent to the Corporate Sustainability Index (ISE)

Abstract

This study aimed at checking whether there is a relation between abnormal return and the BrF_Score and also at checking the relation between abnormal return and the interaction between high and low BrF_Score and the fact that the company is not included in the ISE. The investment strategy of Lopes and Galdi (2007) was used to separate enterprises in the stock market in high and low Score and to analyze whether they had positive abnormal returns. The study also employed the theoretical framework of Kanagaretnam et al. (2007), Galdi (2008), and Kahyaoglu and Bozkus (2010), who claim that the use of a fundamentalist analysis may bring higher abnormal returns to companies with a low level of governance. This is due to the fact that the information asymmetry is bigger in companies with a lower level of corporate governance than in those with a higher level of corporate governance. 320 companies listed on BM&FBovespa were studied, of which 47 were included in the ISE from 2005 to 2011. Through an empirical survey, regression analysis in pooled and in panel was used. The results found show a positive relationship between abnormal returns and the interaction between high level of BrF_Score and non-ISE companies. This result confirms that accounting may help the investor to find portfolios with positive abnormal return among companies with a low level of governance.

Keywords: BrF_Score, corporate governance, abnormal return.