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Corporate Social Responsibility and Stock Market Performance

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Abstract

We analyze the performance of a large sample of SR stocks relative to a control sample of equivalent size for 14 years. We find that individual SR stocks have on average significantly lower returns and unconditional variance than control sample stocks when controlling for industry effects. This result is paralleled by descriptive evidence on the lower (daily return) mean and variance of the buy-and-hold strategies on the SR portfolio with respect to those on the control portfolio. Beyond this first evidence we discover that: i) individual SR stocks are significantly less risky when controlling for conditional heteroskedasticity; ii) there are no significant differences in risk adjusted returns between the two buy and hold strategies on (SR and control sample) portfolios; iii) the buy-and-hold strategies on the SR portfolio exhibits significantly lower exposition to systematic non-diversifiable risk. These last findings are robust to different - market model, GARCH(1,1), APARCH(1,1) - model specifications.

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Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 79.

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Length: 31 pages
Date of creation: 22 Mar 2006
Date of revision: 22 Mar 2006
Handle: RePEc:rtv:ceisrp:79

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Web: http://www.ceistorvergata.it

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Keywords: Corporate Social Responsibility – Conditional Volatility – Portfolio Choice;

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References

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  1. Catherine M. Paul & Donald Siegel, 2006. "Corporate social responsibility and economic performance," Journal of Productivity Analysis, Springer, Springer, vol. 26(3), pages 207-211, December.
  2. Tirole, Jean, 2001. "Corporate Governance," Econometrica, Econometric Society, Econometric Society, vol. 69(1), pages 1-35, January.
  3. Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, Elsevier, vol. 1(1), pages 83-106, June.
  4. Bauer, Bob & Koedijk, Kees & Otten, Roger, 2002. "International Evidence on Ethical Mutual Fund Performance and Investment Style," CEPR Discussion Papers 3452, C.E.P.R. Discussion Papers.
  5. 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.
  6. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, Econometric Society, vol. 59(2), pages 347-70, March.
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Cited by:
  1. Sadorsky, Perry, 2014. "Modeling volatility and conditional correlations between socially responsible investments, gold and oil," Economic Modelling, Elsevier, vol. 38(C), pages 609-618.
  2. Leonardo Becchetti, 2012. "Voting with the wallet," International Review of Economics, Springer, Springer, vol. 59(3), pages 245-268, September.
  3. L. Lambertini & A. Palestini & A. Tampieri, 2014. "CSR in an Asymmetric Duopoly with Environmental Externalities," Working Papers wp959, Dipartimento Scienze Economiche, Universita' di Bologna.
  4. Managi, Shunsuke & Okimoto, Tatsuyoshi & Matsuda, Akimi, 2012. "Do Socially Responsible Investment Indexes Outperform Conventional Indexes?," MPRA Paper 36662, University Library of Munich, Germany.
  5. Wu, Meng-Wen & Shen, Chung-Hua, 2013. "Corporate social responsibility in the banking industry: Motives and financial performance," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3529-3547.
  6. Manescu, Cristiana, 2009. "Stock returns in relation to environmental, social and governance performance: mispricing or compensation for risk?," Working Papers in Economics 376, University of Gothenburg, Department of Economics, revised 01 Mar 2010.
  7. Scholtens, Bert, 2008. "A note on the interaction between corporate social responsibility and financial performance," Ecological Economics, Elsevier, vol. 68(1-2), pages 46-55, December.

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