The Effect of CSR on Stock Performance: New Evidence for the USA and Europe
AbstractThis paper provides new empirical evidence for the effect of corporate social responsibility (CSR) on corporate financial performance. In contrast to former studies, we examine two different regions, namely the USA and Europe. 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 appear to be more robust in the USA and, in addition, to be nonlinear. Our analysis furthermore points to biased parameter estimations 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 vanishes if the explanation of stock performance is based on the Fama-French threefactor or the Carhart four-factor models instead of the simple Capital Asset Pricing Model.
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Bibliographic InfoPaper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 08/85.
Length: 43 pages
Date of creation: May 2008
Date of revision:
Corporate social responsibility; Environmental performance; Financial performance; Asset pricing models.;
Find related papers by JEL classification:
- Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
- M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-31 (All new papers)
- NEP-BEC-2008-05-31 (Business Economics)
- NEP-CFN-2008-05-31 (Corporate Finance)
- NEP-EFF-2008-05-31 (Efficiency & Productivity)
- NEP-ENV-2008-05-31 (Environmental Economics)
- NEP-FMK-2008-05-31 (Financial Markets)
- NEP-SOC-2008-05-31 (Social Norms & Social Capital)
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