Skip to main content
main-content
Top

Hint

Swipe to navigate through the articles of this issue

Published in: Journal of Business Ethics 3/2022

26-02-2021 | Original Paper

Changes in Corporate Social Responsibility and Stock Performance

Authors: Hui-Ju Tsai, Yangru Wu

Published in: Journal of Business Ethics | Issue 3/2022

Login to get access
share
SHARE

Abstract

We study the relationship between corporate social performance and financial performance by comparing the portfolio returns of firms with changes in corporate social responsibility (CSR) intensity. Using an extensive US sample from the MSCI ESG database, we find that improvement in the overall CSR is generally value enhancing. The relationship varies with CSR dimensions. More importantly, the relationship shifts differently for various CSR dimensions during the crisis period when trust in the society is low and financial resource is limited. Improvement in environment, human rights, and product characteristics shows higher financial returns during the financial crisis period, whereas the value enhancement of improvement in employee relations is more pronounced during the non-crisis period.
Appendix
Available only for authorised users
Footnotes
3
For example, in 2012, 11.3% of the $33.3 trillion assets under professional management in the U.S. are invested according to the concept of socially responsible investing. From 1995 to 2012, assets engaged in sustainable and responsible investing practice increased by 486%, while the growth rate of total assets under professional management is only 376% during the same period. See the 2012 Report on Sustainable and Responsible Investing Trends in the United States.
 
4
Detailed information about the number of firms covered by the database over time is available from the authors upon request.
 
5
Other researchers have also specifically studied the CSR aspect of companies involved in the controversial business. See, e.g., Jo and Na (2012), and Oh et al.(2017).
 
6
We use the SIC-based industry classifications of Moskowitz and Grinblatt (1999).
 
7
The data of market value before 1997 is not available from COMPUSTAT, so the statistics of market value are based on the data for the period of 1998–2012.
 
8
In an untabulated analysis, however, we find that such effect is at most temporary. Firms with decreasing commitment to employee relations do not have higher stock returns than those with improvements in employee relations two years after the crisis. The result is available from the authors upon request.
 
9
Here we consider year-fixed effects except when year t + 1 is 2008 or 2009, which is defined as the crisis period.
 
10
The portfolio is constructed based on changes in social performance in 2003–2012. We compare the returns of the up and down portfolios in the subsequent years, i.e., 2004–2013.
 
Literature
go back to reference Aupperle, K. E., Carroll, A. B., & Hatfield, J. D. (1985). An empirical examination of the relationship between corporate social responsibility and profitability. Academy of Management Journal, 28, 446–463. Aupperle, K. E., Carroll, A. B., & Hatfield, J. D. (1985). An empirical examination of the relationship between corporate social responsibility and profitability. Academy of Management Journal, 28, 446–463.
go back to reference Bebchuk, L., Cohen, A., & Ferrell, A. (2009). What matters in corporate governance? Review of Financial Studies, 22, 783–827. CrossRef Bebchuk, L., Cohen, A., & Ferrell, A. (2009). What matters in corporate governance? Review of Financial Studies, 22, 783–827. CrossRef
go back to reference Benabou, R., & Tirole, J. (2010). Individual and corporate social responsibility. Econometrica, 77, 1–19. Benabou, R., & Tirole, J. (2010). Individual and corporate social responsibility. Econometrica, 77, 1–19.
go back to reference Borgers, A., Derwall, J., Koedijk, K., & Horst, J. T. (2013). Stakeholder relations and stock returns: On errors in investors’ expectations and learning. Journal of Empirical Finance, 22, 159–175. CrossRef Borgers, A., Derwall, J., Koedijk, K., & Horst, J. T. (2013). Stakeholder relations and stock returns: On errors in investors’ expectations and learning. Journal of Empirical Finance, 22, 159–175. CrossRef
go back to reference Bowman, E., & Haire, M. (1975). A strategic posture toward corporate social responsibility. California Management Review, 18, 49–58. CrossRef Bowman, E., & Haire, M. (1975). A strategic posture toward corporate social responsibility. California Management Review, 18, 49–58. CrossRef
go back to reference Cai, Y., Jo, H., & Pan, C. (2012). Doing well while doing bad? CSR in controversial industry sectors. Journal of Business Ethics, 108, 467–480. CrossRef Cai, Y., Jo, H., & Pan, C. (2012). Doing well while doing bad? CSR in controversial industry sectors. Journal of Business Ethics, 108, 467–480. CrossRef
go back to reference Carhart, M. M. (1997). On persistence in mutual fund performance. Journal of Finance, 52, 57–82. CrossRef Carhart, M. M. (1997). On persistence in mutual fund performance. Journal of Finance, 52, 57–82. CrossRef
go back to reference Cheng, I.-H., H. Hong, & K. Shue. (2014). Do managers do good with other people’s money? Working Paper, Princeton University. Cheng, I.-H., H. Hong, & K. Shue. (2014). Do managers do good with other people’s money? Working Paper, Princeton University.
go back to reference Chih, H.-L., Chih, H.-H., & Chen, T.-Y. (2010). On the determinants of corporate social responsibility: International evidence on the financial industry. Journal of Business Ethics, 93, 115–135. CrossRef Chih, H.-L., Chih, H.-H., & Chen, T.-Y. (2010). On the determinants of corporate social responsibility: International evidence on the financial industry. Journal of Business Ethics, 93, 115–135. CrossRef
go back to reference Deng, X., Kang, J.-K., & Low, B. S. (2013). Corporate social responsibility and stakeholder value maximization: Evidence from mergers. Journal of Financial Economics, 110, 87–109. CrossRef Deng, X., Kang, J.-K., & Low, B. S. (2013). Corporate social responsibility and stakeholder value maximization: Evidence from mergers. Journal of Financial Economics, 110, 87–109. CrossRef
go back to reference Derwall, J., Guenster, N., Bauer, R., & Koedijk, K. (2005). The eco-efficiency premium puzzle. Financial Analysts Journal, 61, 51–63. CrossRef Derwall, J., Guenster, N., Bauer, R., & Koedijk, K. (2005). The eco-efficiency premium puzzle. Financial Analysts Journal, 61, 51–63. CrossRef
go back to reference Derwall, J., Koedijk, K., & Horst, J. T. (2011). A tale of value-seeking versus profit-driven investors. Journal of Banking and Finance, 35, 2137–2147. CrossRef Derwall, J., Koedijk, K., & Horst, J. T. (2011). A tale of value-seeking versus profit-driven investors. Journal of Banking and Finance, 35, 2137–2147. CrossRef
go back to reference Di Giuli, A., & Kostovetsky, L. (2014). Are red or blue companies more likely to go green? Politics and corporate social responsibility. Journal of Financial Economics, 111, 158–180. CrossRef Di Giuli, A., & Kostovetsky, L. (2014). Are red or blue companies more likely to go green? Politics and corporate social responsibility. Journal of Financial Economics, 111, 158–180. CrossRef
go back to reference Eccles, R. G., & Serafeim, G. (2013). The performance frontier. Harvard Business Review, 91, 50–60. Eccles, R. G., & Serafeim, G. (2013). The performance frontier. Harvard Business Review, 91, 50–60.
go back to reference Edmans, A. (2011). Does the stock market fully value intangibles? Employee satisfaction and equity prices. Journal of Financial Economics, 101, 621–640. CrossRef Edmans, A. (2011). Does the stock market fully value intangibles? Employee satisfaction and equity prices. Journal of Financial Economics, 101, 621–640. CrossRef
go back to reference El Ghoul, S., Guedhami, O., Kwok, Chuck C. Y., & Mishra, Dev R. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking and Finance, 35, 2388–2406. CrossRef El Ghoul, S., Guedhami, O., Kwok, Chuck C. Y., & Mishra, Dev R. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking and Finance, 35, 2388–2406. CrossRef
go back to reference Ferrell, A., Liang, H., & Renneboog, L. (2016). Socially responsible firms. Journal of Financial Economics, 122, 585–606. CrossRef Ferrell, A., Liang, H., & Renneboog, L. (2016). Socially responsible firms. Journal of Financial Economics, 122, 585–606. CrossRef
go back to reference Flammer, C. (2015). Does corporate social responsibility lead to superior financial performance? A regression discontinuity approach. Management Science, 61, 2549–2568. CrossRef Flammer, C. (2015). Does corporate social responsibility lead to superior financial performance? A regression discontinuity approach. Management Science, 61, 2549–2568. CrossRef
go back to reference Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Pitman. Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Pitman.
go back to reference Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times Magazine, 13(32–33), 122–124. Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times Magazine, 13(32–33), 122–124.
go back to reference Galema, R., Plantinga, A., & Scholtens, B. (2008). The stocks at stake: Return and risk in socially responsible investment. Journal of Banking and Finance, 32, 2646–2654. CrossRef Galema, R., Plantinga, A., & Scholtens, B. (2008). The stocks at stake: Return and risk in socially responsible investment. Journal of Banking and Finance, 32, 2646–2654. CrossRef
go back to reference Godfrey, P., Merrill, C., & Hansen, J. (2009). The relationship between corporate social responsibility and shareholder value: An empirical test of the risk management hypothesis. Strategic Management Journal, 30, 425–445. CrossRef Godfrey, P., Merrill, C., & Hansen, J. (2009). The relationship between corporate social responsibility and shareholder value: An empirical test of the risk management hypothesis. Strategic Management Journal, 30, 425–445. CrossRef
go back to reference Goss, A., & Roberts, G. S. (2011). The impact of corporate social responsibility on the cost of bank loans. Journal of Banking and Finance, 35, 1794–1810. CrossRef Goss, A., & Roberts, G. S. (2011). The impact of corporate social responsibility on the cost of bank loans. Journal of Banking and Finance, 35, 1794–1810. CrossRef
go back to reference Gössling, T., & Vocht, C. (2007). Social role conceptions and CSR policy success. Journal of Business Ethics, 74, 363–372. CrossRef Gössling, T., & Vocht, C. (2007). Social role conceptions and CSR policy success. Journal of Business Ethics, 74, 363–372. CrossRef
go back to reference Henke, H.-M. (2016). The effect of social screening on bond mutual fund performance. Journal of Banking and Finance, 67, 69–84. CrossRef Henke, H.-M. (2016). The effect of social screening on bond mutual fund performance. Journal of Banking and Finance, 67, 69–84. CrossRef
go back to reference Hillman, A., & Keim, G. (2001). Shareholder value, stakeholder management, and social issues: What’s the bottom line? Strategic Management Journal, 22, 125–139. CrossRef Hillman, A., & Keim, G. (2001). Shareholder value, stakeholder management, and social issues: What’s the bottom line? Strategic Management Journal, 22, 125–139. CrossRef
go back to reference Hong, H., & Kacperczyk, M. (2009). The price of sin: the effects of social norms on markets. Journal of Financial Economics, 93, 15–36. CrossRef Hong, H., & Kacperczyk, M. (2009). The price of sin: the effects of social norms on markets. Journal of Financial Economics, 93, 15–36. CrossRef
go back to reference Hong, H., J. D. Kubik, & J. A. Scheinkman. (2012). Financial constraints on corporate goodness, Working Paper, Princeton University. Hong, H., J. D. Kubik, & J. A. Scheinkman. (2012). Financial constraints on corporate goodness, Working Paper, Princeton University.
go back to reference Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 14, 8–21. CrossRef Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 14, 8–21. CrossRef
go back to reference Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360. CrossRef Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360. CrossRef
go back to reference Jiao, Y. (2010). Stakeholder welfare and firm value. Journal of Banking and Finance, 34, 2549–2561. CrossRef Jiao, Y. (2010). Stakeholder welfare and firm value. Journal of Banking and Finance, 34, 2549–2561. CrossRef
go back to reference Jo, H., & Na, H. (2012). Does CSR reduce firm risk? Evidence from controversial industry sectors. Journal of Business Ethics, 110, 441–456. CrossRef Jo, H., & Na, H. (2012). Does CSR reduce firm risk? Evidence from controversial industry sectors. Journal of Business Ethics, 110, 441–456. CrossRef
go back to reference Kempf, A., & Osthoff, P. (2007). The effect of socially responsible investing on portfolio performance. European Financial Management, 13, 908–922. CrossRef Kempf, A., & Osthoff, P. (2007). The effect of socially responsible investing on portfolio performance. European Financial Management, 13, 908–922. CrossRef
go back to reference Khan, M., Serafeim, G., & Yoon, A. (2016). Corporate sustainability: First evidence on materiality. Accounting Review, 91, 1697–1724. CrossRef Khan, M., Serafeim, G., & Yoon, A. (2016). Corporate sustainability: First evidence on materiality. Accounting Review, 91, 1697–1724. CrossRef
go back to reference Koh, P.-S., Qian, C., & Wang, H. (2014). Firm litigation risk and the insurance value of corporate social performance. Strategic Management Journal, 35, 1464–1482. CrossRef Koh, P.-S., Qian, C., & Wang, H. (2014). Firm litigation risk and the insurance value of corporate social performance. Strategic Management Journal, 35, 1464–1482. CrossRef
go back to reference Kruger, P. (2015). Corporate goodness and shareholder wealth. Journal of Financial Economics, 115, 304–325. CrossRef Kruger, P. (2015). Corporate goodness and shareholder wealth. Journal of Financial Economics, 115, 304–325. CrossRef
go back to reference Lewis, P. V. (1985). Defining “Business Ethics”: Like nailing jello to a wall. Journal of Business Ethics, 4, 377–383. CrossRef Lewis, P. V. (1985). Defining “Business Ethics”: Like nailing jello to a wall. Journal of Business Ethics, 4, 377–383. CrossRef
go back to reference Lins, K., Servaes, H., & Tamayo, A. (2017). Social capital, trust, and firm performance during the financial crisis. Journal of Finance, 72, 1785–1823. CrossRef Lins, K., Servaes, H., & Tamayo, A. (2017). Social capital, trust, and firm performance during the financial crisis. Journal of Finance, 72, 1785–1823. CrossRef
go back to reference Lys, T., Naughton, J., & Wang, C. (2015). Signaling through corporate accountability reporting. Journal of Accounting and Economics, 60, 56–72. CrossRef Lys, T., Naughton, J., & Wang, C. (2015). Signaling through corporate accountability reporting. Journal of Accounting and Economics, 60, 56–72. CrossRef
go back to reference Macintosh, J. (1999). The issues, effects, and consequences of the Berle-Dodd debate, 1931–1932. Accounting, Organizations and Society, 24, 139–153. CrossRef Macintosh, J. (1999). The issues, effects, and consequences of the Berle-Dodd debate, 1931–1932. Accounting, Organizations and Society, 24, 139–153. CrossRef
go back to reference Makni, R., Francoeur, C., & Bellavance, F. (2009). Causality between corporate social performance and financial performance: Evidence from Canadian firms. Journal of Business Ethics, 89, 409–422. CrossRef Makni, R., Francoeur, C., & Bellavance, F. (2009). Causality between corporate social performance and financial performance: Evidence from Canadian firms. Journal of Business Ethics, 89, 409–422. CrossRef
go back to reference Masulis, R., & Reza, S. W. (2015). Agency problem and corporate philanthropy. Review of Financial Studies, 28, 592–636. CrossRef Masulis, R., & Reza, S. W. (2015). Agency problem and corporate philanthropy. Review of Financial Studies, 28, 592–636. CrossRef
go back to reference McWilliams, A., & Siegel, D. (2000). Corporate social responsibility and financial performance: Correlation or misspecification? Strategic Management Journal, 21, 603–609. CrossRef McWilliams, A., & Siegel, D. (2000). Corporate social responsibility and financial performance: Correlation or misspecification? Strategic Management Journal, 21, 603–609. CrossRef
go back to reference Moore, G. (2001). Corporate social and financial performance: An investigation in the U.K. supermarket industry. Journal of Business Ethics, 34, 299–315. CrossRef Moore, G. (2001). Corporate social and financial performance: An investigation in the U.K. supermarket industry. Journal of Business Ethics, 34, 299–315. CrossRef
go back to reference Moskowitz, T. J., & Grinblatt, M. (1999). Do industries explain momentum? Journal of Finance, 54, 1249–1290. CrossRef Moskowitz, T. J., & Grinblatt, M. (1999). Do industries explain momentum? Journal of Finance, 54, 1249–1290. CrossRef
go back to reference Newey, W. K., & West, K. D. (1987). A simple, positive semi-definite, heterogeneity and autocorrelation consistent covariance matrix. Econometrica, 55, 703–708. CrossRef Newey, W. K., & West, K. D. (1987). A simple, positive semi-definite, heterogeneity and autocorrelation consistent covariance matrix. Econometrica, 55, 703–708. CrossRef
go back to reference Nofsinger, J., & Varma, A. (2014). Socially responsible funds and market crises. Journal of Banking and Finance, 48, 180–193. CrossRef Nofsinger, J., & Varma, A. (2014). Socially responsible funds and market crises. Journal of Banking and Finance, 48, 180–193. CrossRef
go back to reference Oh, H., Bae, J., & Kim, S.-J. (2017). Can sinful firms benefit from advertising their CSR efforts? Adverse effect of advertising sinful firms’ CSR engagements on firm performance. Journal of Business Ethics, 143, 643–663. CrossRef Oh, H., Bae, J., & Kim, S.-J. (2017). Can sinful firms benefit from advertising their CSR efforts? Adverse effect of advertising sinful firms’ CSR engagements on firm performance. Journal of Business Ethics, 143, 643–663. CrossRef
go back to reference Orlitzky, M. (2001). Does firm size confound the relationship between corporate social performance and firm financial performance? Journal of Business Ethics, 33, 167–180. CrossRef Orlitzky, M. (2001). Does firm size confound the relationship between corporate social performance and firm financial performance? Journal of Business Ethics, 33, 167–180. CrossRef
go back to reference Preston, L. E., & O’Bannon, D. (1997). The corporate social-financial performance relationship. A typology and analysis. Business and Society, 36, 419–429. CrossRef Preston, L. E., & O’Bannon, D. (1997). The corporate social-financial performance relationship. A typology and analysis. Business and Society, 36, 419–429. CrossRef
go back to reference Renneboog, L., Horst, J. T., & Zhang, C. (2008). Socially responsible investments: Institutional aspects, performance and investor behavior. Journal of Banking and Finance, 32, 1723–1742. CrossRef Renneboog, L., Horst, J. T., & Zhang, C. (2008). Socially responsible investments: Institutional aspects, performance and investor behavior. Journal of Banking and Finance, 32, 1723–1742. CrossRef
go back to reference Seifert, B., Morris, S. A., & Bartkus, B. R. (2003). Comparing big givers and small givers: Financial Correlates of Corporate Philanthropy. Journal of Business Ethics, 45, 195–211. CrossRef Seifert, B., Morris, S. A., & Bartkus, B. R. (2003). Comparing big givers and small givers: Financial Correlates of Corporate Philanthropy. Journal of Business Ethics, 45, 195–211. CrossRef
go back to reference Servaes, H., & Tamayo, A. (2013). The impact of corporate social responsibility on firm value: The role of customer awareness. Management Science, 59, 1045–1061. CrossRef Servaes, H., & Tamayo, A. (2013). The impact of corporate social responsibility on firm value: The role of customer awareness. Management Science, 59, 1045–1061. CrossRef
go back to reference Sharfman, Mark, & Fernando, Chitru. (2008). Environment risk management and the cost of capital. Strategic Management Journal, 29, 569–592. CrossRef Sharfman, Mark, & Fernando, Chitru. (2008). Environment risk management and the cost of capital. Strategic Management Journal, 29, 569–592. CrossRef
go back to reference Shiu, Y.-M., & Yang, S.-L. (2017). Does management in corporate social responsibility provide strategic insurance-like effects? Strategic Management Journal, 38, 455–470. CrossRef Shiu, Y.-M., & Yang, S.-L. (2017). Does management in corporate social responsibility provide strategic insurance-like effects? Strategic Management Journal, 38, 455–470. CrossRef
go back to reference Simpson, W. G., & Kohers, T. (2002). The link between corporate social and financial performance: Evidence from the banking industry. Journal of Business Ethics, 35, 97–109. CrossRef Simpson, W. G., & Kohers, T. (2002). The link between corporate social and financial performance: Evidence from the banking industry. Journal of Business Ethics, 35, 97–109. CrossRef
go back to reference Statman, M., & Glushkov, D. (2009). The wages of social responsibility. Financial Analysts Journal, 65, 33–46. CrossRef Statman, M., & Glushkov, D. (2009). The wages of social responsibility. Financial Analysts Journal, 65, 33–46. CrossRef
go back to reference van Beurden, P., & Gössling, T. (2008). The worth of values - A literature review on the relation between corporate social and financial performance. Journal of Business Ethics, 82, 407–424. CrossRef van Beurden, P., & Gössling, T. (2008). The worth of values - A literature review on the relation between corporate social and financial performance. Journal of Business Ethics, 82, 407–424. CrossRef
go back to reference Waddock, S. A., & Graves, S. B. (1997). The corporate social performance-financial performance link. Strategic Management Journal, 18, 303–319. CrossRef Waddock, S. A., & Graves, S. B. (1997). The corporate social performance-financial performance link. Strategic Management Journal, 18, 303–319. CrossRef
go back to reference Wang, H., & Qian, C. (2011). Corporate philanthropy and corporate financial performance: The roles of stakeholder response and political access. Academy of Management Journal, 54, 1159–1181. CrossRef Wang, H., & Qian, C. (2011). Corporate philanthropy and corporate financial performance: The roles of stakeholder response and political access. Academy of Management Journal, 54, 1159–1181. CrossRef
go back to reference Wang, X., Cao, F., & Ye, K. (2018). Mandatory corporate social responsibility (CSR) reporting and financial reporting quality: Evidence from a quasi-natural experiment. Journal of Business Ethics, 152, 253–274. CrossRef Wang, X., Cao, F., & Ye, K. (2018). Mandatory corporate social responsibility (CSR) reporting and financial reporting quality: Evidence from a quasi-natural experiment. Journal of Business Ethics, 152, 253–274. CrossRef
Metadata
Title
Changes in Corporate Social Responsibility and Stock Performance
Authors
Hui-Ju Tsai
Yangru Wu
Publication date
26-02-2021
Publisher
Springer Netherlands
Published in
Journal of Business Ethics / Issue 3/2022
Print ISSN: 0167-4544
Electronic ISSN: 1573-0697
DOI
https://doi.org/10.1007/s10551-021-04772-w

Other articles of this Issue 3/2022

Journal of Business Ethics 3/2022 Go to the issue

Premium Partner