Corporate social responsibility and strategic company behaviour: CVS Health's discontinuation of tobacco products

The elimination of tobacco products by CVS Health represents a special case of corporate social responsibility (CSR) with substantial costs—about $2 billion revenue loss in tobacco annually. This paper examines how CVS Health's stock market performance was affected by two events: the announcement (5 February 2014) and the implementation (1 October 2014) of the elimination of tobacco products. The study event approach and regression models are used to examine both short‐ and long‐term effects. The results show positive and significant abnormal returns during both events, with effects being much stronger during the implementation event period. In the long term, the net effects become neutral, most likely because the positive effects of CSR and the negative effects of the revenue loss offset each other. The results have important implications for both the retail pharmacy industry and companies in other industries. Socially responsible actions, such as the elimination of harmful products could impose substantial revenue losses or extra expenses, but more importantly, they can have a positive and significant impact on corporate financial performance. Thus, such actions benefit not only the stakeholders, but also the shareholders, and are consistent with both stakeholder theory and shareholder theory.