ABSTRACT 

International Sustainability Standards (ISSs) help firms improve their sustainability performance and act as credible market “signals” that legitimize companies’ latent sustainability practices. Prior studies show a positive association between firms’ ISS signaling and their improved market value and sustainability performance. Our research suggests that signals behave differently when firms adopt multiple ISSs in that, beyond an optimum, ISS signals provide information, which investors devalue, causing firms’ market value to decline. Further, while we suggest that sustainability performance derived from adopting multiple ISSs also declines beyond an optimum, the number of ISSs that optimizes firms’ market value is less than the number that optimizes sustainability performance. We call this difference a performance “penalty zone,” where firms continue to improve their sustainability performance but at a market penalty. These findings offer important nuance to signaling theory and assumptions that improved sustainability pays.  

Keywords: International sustainability standards; market value; penalty zone; signaling theory; sustainability performance