IDEAS home Printed from https://ideas.repec.org/a/taf/quantf/v14y2014i6p977-991.html
   My bibliography  Save this article

The effect of corporate social responsibility on stock performance: new evidence for the USA and Europe

Author

Listed:
  • Urs von Arx
  • Andreas Ziegler

Abstract

This paper provides new empirical evidence for the effect of corporate social responsibility on corporate financial performance. In contrast to former studies, we examine two different regions, namely the USA and Europe, and disentangle firm and sector specific impacts. Our econometric analysis shows that environmental and social activities of a firm compared with other firms within the industry are valued by financial markets in both regions. However, the respective positive effects on average monthly stock returns between 2003 and 2006 are more robust in the USA and, in addition, non-linear. Our analysis furthermore points to biased parameter estimates if incorrectly specified econometric models are applied: the seemingly significantly negative effect of environmental and social performance of the industry to which a firm belongs strongly declines and mostly becomes insignificant if the explanation of stock performance is based on the Fama-French three-factor or the Carhart four-factor models instead of the simple Capital Asset Pricing Model.

Suggested Citation

  • Urs von Arx & Andreas Ziegler, 2014. "The effect of corporate social responsibility on stock performance: new evidence for the USA and Europe," Quantitative Finance, Taylor & Francis Journals, vol. 14(6), pages 977-991, June.
    • Handle: RePEc:taf:quantf:v:14:y:2014:i:6:p:977-991
    DOI: 10.1080/14697688.2013.815796
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/14697688.2013.815796
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/14697688.2013.815796?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Beltratti, Andrea, 2005. "Capital market equilibrium with externalities, production and heterogeneous agents," Journal of Banking & Finance, Elsevier, vol. 29(12), pages 3061-3073, December.
    2. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    3. Heinkel, Robert & Kraus, Alan & Zechner, Josef, 2001. "The Effect of Green Investment on Corporate Behavior," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(4), pages 431-449, December.
    4. Dasgupta, Susmita & Laplante, Benoit & Mamingi, Nlandu, 2001. "Pollution and Capital Markets in Developing Countries," Journal of Environmental Economics and Management, Elsevier, vol. 42(3), pages 310-335, November.
    5. Gupta, Shreekant & Goldar, Bishwanath, 2005. "Do stock markets penalize environment-unfriendly behaviour? Evidence from India," Ecological Economics, Elsevier, vol. 52(1), pages 81-95, January.
    6. Kjetil Telle, 2006. "“It Pays to be Green” – A Premature Conclusion?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 35(3), pages 195-220, November.
    7. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
    8. Abagail McWilliams & Donald S. Siegel & Patrick M. Wright, 2006. "Corporate Social Responsibility: Strategic Implications," Journal of Management Studies, Wiley Blackwell, vol. 43(1), pages 1-18, January.
    9. De Bondt, Werner F M & Thaler, Richard, 1985. "Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
    10. Bauer, Rob & Koedijk, Kees & Otten, Roger, 2005. "International evidence on ethical mutual fund performance and investment style," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1751-1767, July.
    11. Leonardo Becchetti & Stefania Di Giacomo & Damiano Pinnacchio, 2008. "Corporate social responsibility and corporate performance: evidence from a panel of US listed companies," Applied Economics, Taylor & Francis Journals, vol. 40(5), pages 541-567.
    12. Ziegler, Andreas & Busch, Timo & Hoffmann, Volker H., 2011. "Disclosed corporate responses to climate change and stock performance: An international empirical analysis," Energy Economics, Elsevier, vol. 33(6), pages 1283-1294.
    13. Andrew King & Michael Lenox, 2002. "Exploring the Locus of Profitable Pollution Reduction," Management Science, INFORMS, vol. 48(2), pages 289-299, February.
    14. Hong, Harrison & Kacperczyk, Marcin, 2009. "The price of sin: The effects of social norms on markets," Journal of Financial Economics, Elsevier, vol. 93(1), pages 15-36, July.
    15. Fama, Eugene F & French, Kenneth R, 1996. "Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
    16. Narasimhan Jegadeesh & Sheridan Titman, 2001. "Profitability of Momentum Strategies: An Evaluation of Alternative Explanations," Journal of Finance, American Finance Association, vol. 56(2), pages 699-720, April.
    17. K. Geert Rouwenhorst, 1998. "International Momentum Strategies," Journal of Finance, American Finance Association, vol. 53(1), pages 267-284, February.
    18. Elsayed, Khaled & Paton, David, 2005. "The impact of environmental performance on firm performance: static and dynamic panel data evidence," Structural Change and Economic Dynamics, Elsevier, vol. 16(3), pages 395-412, September.
    19. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    20. L'Her, Jean-Francois & Masmoudi, Tarek & Suret, Jean-Marc, 2004. "Evidence to support the four-factor pricing model from the Canadian stock market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(4), pages 313-328, October.
    21. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    22. William F. Sharpe, 1963. "A Simplified Model for Portfolio Analysis," Management Science, INFORMS, vol. 9(2), pages 277-293, January.
    23. Andrew A. King & Michael J. Lenox, 2001. "Does It Really Pay to Be Green? An Empirical Study of Firm Environmental and Financial Performance: An Empirical Study of Firm Environmental and Financial Performance," Journal of Industrial Ecology, Yale University, vol. 5(1), pages 105-116, January.
    24. Shanken, Jay, 1992. "On the Estimation of Beta-Pricing Models," The Review of Financial Studies, Society for Financial Studies, vol. 5(1), pages 1-33.
    25. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    26. Abagail McWilliams & Donald Siegel, 2000. "Corporate social responsibility and financial performance: correlation or misspecification?," Strategic Management Journal, Wiley Blackwell, vol. 21(5), pages 603-609, May.
    27. Hamilton James T., 1995. "Pollution as News: Media and Stock Market Reactions to the Toxics Release Inventory Data," Journal of Environmental Economics and Management, Elsevier, vol. 28(1), pages 98-113, January.
    28. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
    29. Jean Tirole, 2006. "The Theory of Corporate Finance," Post-Print hal-00173191, HAL.
    30. Kempf, Alexander & Osthoff, Peer, 2007. "The effect of socially responsible investing on portfolio performance," CFR Working Papers 06-10, University of Cologne, Centre for Financial Research (CFR).
    31. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    32. André F. Perold, 2004. "The Capital Asset Pricing Model," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 3-24, Summer.
    33. Alexander Kempf & Peer Osthoff, 2007. "The Effect of Socially Responsible Investing on Portfolio Performance," European Financial Management, European Financial Management Association, vol. 13(5), pages 908-922, November.
    34. Eugene F. Fama & Kenneth R. French, 2004. "The Capital Asset Pricing Model: Theory and Evidence," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 25-46, Summer.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Minghui Yang & Yan Wang & Lu Bai & Petra Maresova, 2023. "Corporate social responsibility, family involvement, and stock price crash risk," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(3), pages 1204-1225, May.
    2. Porzio, Claudio & Salerno, Dario & Stella, Gian Paolo, 2023. "Retail investors’ sensitivity to the development and promotion of CSR issues," Finance Research Letters, Elsevier, vol. 53(C).
    3. Rizwan Ali & Muhammad Safdar Sial & Talles Vianna Brugni & Jinsoo Hwang & Nguyen Vinh Khuong & Thai Hong Thuy Khanh, 2019. "Does CSR Moderate the Relationship between Corporate Governance and Chinese Firm’s Financial Performance? Evidence from the Shanghai Stock Exchange (SSE) Firms," Sustainability, MDPI, vol. 12(1), pages 1-17, December.
    4. Jayasree Mangalagiri & Malla Praveen Bhasa, 2022. "Corporate social responsibility and firm performance: evidence from India’s national stock exchange listed companies," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 19(2), pages 144-152, June.
    5. El Ouadghiri, Imane & Guesmi, Khaled & Peillex, Jonathan & Ziegler, Andreas, 2021. "Public Attention to Environmental Issues and Stock Market Returns," Ecological Economics, Elsevier, vol. 180(C).
    6. Oikonomou, Ioannis & Platanakis, Emmanouil & Sutcliffe, Charles, 2018. "Socially responsible investment portfolios: Does the optimization process matter?," The British Accounting Review, Elsevier, vol. 50(4), pages 379-401.
    7. Clark, Ephraim & Lahiani, Amine & Mefteh-Wali, Salma, 2023. "Cryptocurrency return predictability: What is the role of the environment?," Technological Forecasting and Social Change, Elsevier, vol. 189(C).
    8. Woldt, Jason J. & Prasad, Sameer, 2022. "Crises in global supply chains: The role of impression management communications," International Journal of Production Economics, Elsevier, vol. 252(C).
    9. Akhtar Ali & Imran Abbas Jadoon, 2022. "The Value Relevance of Corporate Sustainability Performance (CSP)," Sustainability, MDPI, vol. 14(15), pages 1-31, July.
    10. Greg Filbeck & Xin Zhao & Matthew Warnaka, 2022. "Glassdoor's best places to work internationally: Are they best for shareholders?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4350-4363, October.
    11. Arnaud Gougler & Sebastian Utz, 2020. "Factor exposures and diversification: Are sustainably screened portfolios any different?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(3), pages 221-249, September.
    12. Yang, Ann Shawing & Baasandorj, Suvd, 2017. "Exploring CSR and financial performance of full-service and low-cost air carriers," Finance Research Letters, Elsevier, vol. 23(C), pages 291-299.
    13. Muzhar Javed & Muhammad Amir Rashid & Ghulam Hussain & Hafiz Yasir Ali, 2020. "The effects of corporate social responsibility on corporate reputation and firm financial performance: Moderating role of responsible leadership," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(3), pages 1395-1409, May.
    14. Seong Ho Lee, 2021. "Effects of Retailers’ Corporate Social Responsibility on Retailer Equity and Consumer Usage Intention," Sustainability, MDPI, vol. 13(6), pages 1-9, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Urs von Arx & Andreas Ziegler, 2008. "The Effect of CSR on Stock Performance: New Evidence for the USA and Europe," CER-ETH Economics working paper series 08/85, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    2. Ziegler, Andreas & Busch, Timo & Hoffmann, Volker H., 2011. "Disclosed corporate responses to climate change and stock performance: An international empirical analysis," Energy Economics, Elsevier, vol. 33(6), pages 1283-1294.
    3. Oberndorfer, Ulrich & Schmidt, Peter & Wagner, Marcus & Ziegler, Andreas, 2013. "Does the stock market value the inclusion in a sustainability stock index? An event study analysis for German firms," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 497-509.
    4. Mollet, Janick Christian & Ziegler, Andreas, 2014. "Socially responsible investing and stock performance: New empirical evidence for the US and European stock markets," Review of Financial Economics, Elsevier, vol. 23(4), pages 208-216.
    5. Janick Christian Mollet & Andreas Ziegler, 2014. "Socially responsible investing and stock performance: New empirical evidence for the US and European stock markets," Review of Financial Economics, John Wiley & Sons, vol. 23(4), pages 208-216, November.
    6. Janick Christian Mollet & Andreas Ziegler, 2012. "Is Socially Responsible Investing Really Beneficial? New Empirical Evidence for the US and European Stock Markets," MAGKS Papers on Economics 201228, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    7. Will Gans & Beat Hintermann, 2013. "Market Effects of Voluntary Climate Action by Firms: Evidence from the Chicago Climate Exchange," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 55(2), pages 291-308, June.
    8. Andreas Ziegler, 2012. "Is it Beneficial to be Included in a Sustainability Stock Index? A Panel Data Study for European Firms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(3), pages 301-325, July.
    9. Thomas Walker & Kerstin Lopatta & Thomas Kaspereit, 2014. "Corporate sustainability in asset pricing models and mutual funds performance measurement," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 28(4), pages 363-407, November.
    10. Sebastian Lobe & Christian Walkshäusl, 2016. "Vice versus virtue investing around the world," Review of Managerial Science, Springer, vol. 10(2), pages 303-344, March.
    11. Amit Goyal, 2012. "Empirical cross-sectional asset pricing: a survey," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 26(1), pages 3-38, March.
    12. El Ouadghiri, Imane & Guesmi, Khaled & Peillex, Jonathan & Ziegler, Andreas, 2021. "Public Attention to Environmental Issues and Stock Market Returns," Ecological Economics, Elsevier, vol. 180(C).
    13. Fernando Rubio, 2005. "Eficiencia De Mercado, Administracion De Carteras De Fondos Y Behavioural Finance," Finance 0503028, University Library of Munich, Germany, revised 23 Jul 2005.
    14. Ciciretti, Rocco & Dalò, Ambrogio & Dam, Lammertjan, 2023. "The contributions of betas versus characteristics to the ESG premium," Journal of Empirical Finance, Elsevier, vol. 71(C), pages 104-124.
    15. Keith Lam & Frank Li, 2008. "The risk premiums of the four-factor asset pricing model in the Hong Kong stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 18(20), pages 1667-1680.
    16. Israel, Ronen & Moskowitz, Tobias J., 2013. "The role of shorting, firm size, and time on market anomalies," Journal of Financial Economics, Elsevier, vol. 108(2), pages 275-301.
    17. Zura Kakushadze & Willie Yu, 2016. "Multifactor Risk Models and Heterotic CAPM," Papers 1602.04902, arXiv.org, revised Mar 2016.
    18. Galema, Rients & Plantinga, Auke & Scholtens, Bert, 2008. "The stocks at stake: Return and risk in socially responsible investment," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2646-2654, December.
    19. repec:fau:fauart:v:65:y:2015:i:1:p:84-104 is not listed on IDEAS
    20. Márcio André Veras Machado & Márcia Reis Machado, 2014. "Liquidity and asset pricing:evidence from the Brazilian market," Brazilian Business Review, Fucape Business School, vol. 11(1), pages 69-89, January.
    21. Sonntag, Dominik, 2018. "Die Theorie der fairen geometrischen Rendite [The Theory of Fair Geometric Returns]," MPRA Paper 87082, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:14:y:2014:i:6:p:977-991. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RQUF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.