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Corporate equality and equity prices: Doing well while doing good?

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Author Info
Fu, Shihe
Shan, Liwei

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Abstract

Two competing hypotheses, value enhancing and value discounting, state that implementing socially responsible corporate policies can have positive or negative effects on firm value. This paper tests how a specific type of social responsibility–corporate equality–affects firm value. Corporate equality is measured by the corporate equality index (CEI). This index quantifies how companies treat their gay, lesbian, bisexual, and transgender employees, consumers, and investors. Using a sample of CEI-rated, publicly traded firms in the U.S., we find that, between 2002 and 2006, firms with a higher degree of corporate equality have higher stock returns and higher market valuation (Q). We provide suggestive, causal evidence that corporate equality enhances firm value through better performance in product markets and labor markets: Firms with a higher degree of corporate equality also tend to have larger sales, higher profit margins, higher employee productivity, and attract more employees. These results are robust to the inclusion of unobserved firm-heterogeneities. Overall, our results support the value-enhancing effects of corporate social responsibility.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14235.

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Date of creation: 12 Mar 2009
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Handle: RePEc:pra:mprapa:14235

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Related research
Keywords: Corporate equality; social responsibility; socially responsible investment; stock returns; performance;

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Find related papers by JEL classification:
M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Social Responsibility
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
J70 - Labor and Demographic Economics - - Labor Discrimination - - - General

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