Drawbacks of a Delisting from a Sustainability Index: An Empirical Analysis

Abstract

All businesses must balance a focus on profits with a focus on ethics. In today’s business world, investors are paying an increasing amount of attention to companies’ commitments to corporate sustainability (CS). In order to enhance the credibility of their CS investments, large companies often seek listings in the major sustainability indexes. However, what are the drawbacks of being delisted from such indexes? This paper aims to determine the impact of such a delisting on firm performance. Our sample covers firms included in and deleted from the FTSE4Good sustainability index from 2008 to 2011. The results reveal a negative relationship between firm performance and a delisting. This relationship is explained in terms of how performance is negatively affected by firms’ scores on different sustainability criteria. In addition, a listing on one of the three main stock exchanges is found to positively moderate the negative relationship between being delisted from a sustainability index and stock-market reactions.