How to measure Corporate Social Responsibility
AbstractCompliance with Corporate Social Responsibility (CSR) standards may require capacity that varies from one aspect to the other and companies in different industries may encounter different difficulties. Since CSR is a multidimensional concept, latent variable models may be usefully employed to provide a unidimensional measure of the ability of a firm to fulfil CSR standards. A methodology based on Item Response Theory has been implemented on the KLD sustainability dataset. Results show that companies in the industries Oil & Gas, Industrials, Basic Materials and Telecommunications have a higher difficulty to meet the CSR standards. Criteria based on Environment, Community relations and Product quality have a large capacity to select the firms with the best CSR performance, while Governance does not exhibit similar behavior. A stock selection based on the ranking of the firms according to our CSR measure outperforms, in terms of risk-adjusted returns, stock selection based on other criteria.
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Bibliographic InfoPaper provided by Università di Perugia, Dipartimento Economia, Finanza e Statistica in its series Quaderni del Dipartimento di Economia, Finanza e Statistica with number 96/2011.
Length: 22 pages
Date of creation: 15 Oct 2011
Date of revision:
Socially Responsible Investment; CSR ability; latent variable model; item response theory;
Find related papers by JEL classification:
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G19 - Financial Economics - - General Financial Markets - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-25 (All new papers)
- NEP-BEC-2012-01-25 (Business Economics)
- NEP-MKT-2012-01-25 (Marketing)
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