Which dimensions of social responsibility concern financial investors?
AbstractSocial and environmental ratings provided by social rating agencies are multidimensional. Using the six sub-ratings provided by the Vigeo rating agency, we perform a principal component analysis and we highlight three main socially responsible (SR) dimensions related to (1) the direct non-financial stakeholders (employee, customers and suppliers), (2) the indirect stakeholders (environment and society) and (3) the financial stakeholders (stockholders and debt holders).We explore the link between stock returns and these three SR dimensions. Our main result is that, for each SR dimension, investors ask for an additional risk premium when they decide to hold non SR stocks. The cost of equity is thus lower for socially responsible firms. The average premium over the period 2003-2010 is larger for the components "direct non-financial stakeholders" and "financial stakeholders" than for the component "indirect stakeholders". For this last component, the premium obviously exists only since the end of 2008. Environment and community involvement have only recently become a more important risk factor in investors' minds. About the former risk premia ("direct non-financial stakeholders" and "financial stakeholders"), investors appear to penalize firms with the worst behavior in respect to their direct non-financial stakeholders and reward firms with good corporate governance practices
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Date of creation: 2012
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socially responsible investment; social ratings; asset pricing; principal component analysis;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
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