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The effect of corporate social responsibility (CSR) on shareholder value: evidence from the 9/11 terrorist attack

Author

Listed:
  • Viput Ongsakul
  • Pornsit Jiraporn
  • Shenghui Tong
  • Sirimon Treepongkaruna

Abstract

Purpose - This paper aims to explore the effect of corporate social responsibility (CSR) on shareholder value using the stock market reactions to a terrorist attack. This paper exploits the September 11 terrorist attack as an unanticipated exogenous shock that reduced shareholder wealth suddenly and unexpectedly. Based on the risk-mitigation hypothesis, the argument is that more socially responsible firms should suffer less negative market reactions. Design/methodology/approach - This paper uses the standard event study methodology to estimate the stock market reactions to the 9/11 terrorist attack. Then, the study executes a cross-section analysis to determine whether CSR offers any protection in the presence of a sudden negative shock. Additional analysis includes propensity score matching, instrumental-variable analysis and using Oster’s (2019) method for testing coefficient stability. Findings - The results show that the negative stock market reactions to the shock are significantly alleviated for firms with strong social responsibility. A rise in CSR by one standard deviation improves the market reactions by 22.56% of the average decline. This is consistent with the prediction of the risk mitigation hypothesis, where CSR spawns moral capital or goodwill that functions as an insurance-like defense in case of an adverse event. Research limitations/implications - The study focuses on short-term market reactions because this method is more likely to show a causal effect. Future research may investigate long-term effects. Originality/value - While prior research has investigated the effect of CSR on firm value, it has been challenging to establish causality. The approach is more likely to show causality as it is based on a sudden and unanticipated negative shock. This paper also uses several methods to reduce endogeneity, making it more likely that the results show causality, rather than merely an association.

Suggested Citation

  • Viput Ongsakul & Pornsit Jiraporn & Shenghui Tong & Sirimon Treepongkaruna, 2020. "The effect of corporate social responsibility (CSR) on shareholder value: evidence from the 9/11 terrorist attack," Accounting Research Journal, Emerald Group Publishing Limited, vol. 34(1), pages 91-105, December.
    • Handle: RePEc:eme:arjpps:arj-10-2019-0204
    DOI: 10.1108/ARJ-10-2019-0204
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    Citations

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    Cited by:

    1. Chindasombatcharoen, Pongsapak & Chatjuthamard, Pattanaporn & Jiraporn, Pornsit, 2023. "Corporate culture, cultural diversification, and independent directors: Evidence from earnings conference calls," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    2. Chatjuthamard, Pattanaporn & Ongsakul, Viput & Jiraporn, Pornsit, 2022. "Corporate complexity, managerial myopia, and hostile takeover exposure: Evidence from textual analysis," Journal of Behavioral and Experimental Finance, Elsevier, vol. 33(C).

    More about this item

    Keywords

    CSR; Corporate social responsibility; shareholder value; Event study; Shareholder wealth; Endogeniety; M14; D22; G32;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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