Market return effects of African security exchanges commitments to the sustainable stock exchanges initiative

Abstract Utilizing an event study methodology, the study examines the African Security Exchanges market returns reaction following their commitment to the United Nations Sustainable Stock Exchanges Initiative. While adoption of sustainability initiatives is informed by institutional, signaling and information asymmetry theories, the frameworks were developed in advanced economies with mature financial markets. Their applicability in emerging economies is still underexplored. Furthermore, the literature on effect of voluntary and mandatory sustainability initiatives on performance is still inconclusive. Through contextualizing the theories within Africa, this study provides empirical evidence on the effect of a voluntary initiative on market performance. The analysis conducted on different event windows, based on t test and random effects event study model, revealed an overall neutral reaction on market returns across African exchanges. Nonetheless, market liquidity exhibited a weak positive effect on the returns. Based on these findings, we recommend that African security exchanges adopt a balanced approach, combining voluntary and mandatory sustainability initiatives that are tailored to local context to enhance their effectiveness. Secondly, to enhance the credibility of voluntary sustainability commitment, exchanges should clearly communicate their implementation plans and regularly disclose measurable progress updates. The sample comprised of African security exchanges, institutions with distinct characteristics. While the model can be applied in other economies, generalization of findings to other contexts should be made with consideration of this limitation.