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Corporate social responsibility and shareholder's value: an empirical analysis

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Author Info
Becchetti , Leonardo
Ciciretti , Rocco
Hasan, Iftekhar () (Lally School of Management, Rensselaer Polytechnic Institute and Bank of Finland Research)

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Abstract

In today’s global economy, corporate social responsibility (CSR) is a core component of corporate strategy. Due in part to financial scandals, losses, and the diminished reputation of the affected listed companies, CRS is emerging as a crucial instrument for minimizing conflicts with stakeholders. While corporations are busy adopting and enhancing CSR practices, there is (beyond a very few notable exceptions) no established empirical research on its impact and relevance for the capital market. Our paper investigates this issue by tracing market reactions to corporate entry into and exit from the Domini 400 Social Index (a recognized CSR benchmark) between 1990 and 2004. Our paper highlights two main findings: i) a significant upward trend in absolute values of abnormal returns, irrespective of the event (entry/exit vis-à-vis the index) type; and ii) a significant negative effect on abnormal returns after announcement from the Domini index. The latter effect continues to persist even after controlling for concurring financial distress shocks and stock market seasonality.

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Publisher Info
Paper provided by Bank of Finland in its series Research Discussion Papers with number 1/2009.

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Length: 50 pages
Date of creation: 19 Jan 2009
Date of revision:
Handle: RePEc:hhs:bofrdp:2009_001

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.bof.fi/en/tutkimus
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Related research
Keywords: corporate social responsibility; event study;

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  5. Frey, Bruno S & Oberholzer-Gee, Felix, 1997. "The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out," American Economic Review, American Economic Association, vol. 87(4), pages 746-55, September. [Downloadable!] (restricted)
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  7. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May. [Downloadable!] (restricted)
  8. Bernanke, Ben & Gertler, Mark, 1990. "Financial Fragility and Economic Performance," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 87-114, February. [Downloadable!] (restricted)
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  9. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ganelli , Giovanni & Tervala, Juha, 2009. "Public infrastructures, public consumption and welfare in a new open economy macro model," Research Discussion Papers 8/2009, Bank of Finland. [Downloadable!]
    Other versions:
  2. Hasan, Iftekhar & Koetter , Michael & Wedow, Michael, 2009. "Regional growth and finance in Europe: Is there a quality effect of bank efficiency?," Research Discussion Papers 13/2009, Bank of Finland. [Downloadable!]
    Other versions:
  3. Mayes, David G, 2009. "Early intervention and prompt corrective action in Europe," Research Discussion Papers 17/2009, Bank of Finland. [Downloadable!]
  4. Baron, David P. & Harjoto, Maretno A. & Jo, Hoje, 2008. "The Economics and Politics of Corporate Social Performance," Research Papers 1993, Stanford University, Graduate School of Business. [Downloadable!]
  5. Palmroos, Peter, 2009. "Effects of unobserved defaults on correlation between probability of default and loss given default on mortgage loans," Research Discussion Papers 3/2009, Bank of Finland. [Downloadable!]
  6. Chung-Hua Shen & Yuan Chang, 2009. "Ambition Versus Conscience, Does Corporate Social Responsibility Pay off? The Application of Matching Methods," Journal of Business Ethics, Springer, vol. 88(1), pages 133-153, April. [Downloadable!] (restricted)
  7. Honkapohja, Seppo, 2009. "The 1990’s financial crises in Nordic countries," Research Discussion Papers 5/2009, Bank of Finland. [Downloadable!]
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