Corporate Social Performance and Stock Returns: UK Evidence from Disaggregate Measures
This study examines the relationship between corporate social performance and stock returns in the UK. Using a set of disaggregated social performance indicators for environment, employment and community activities, we are able more closely to evaluate the interactions between social and financial performance than would be the case for an aggregate measure. While scores on a composite social performance indicator are negatively related to stock returns, we find that the poor financial reward offered by such firms is attributable to their good social performance on the environment and, to a lesser extent, the community aspects. Interestingly, we find that considerable abnormal returns are available from holding a portfolio of the socially least desirable stocks. These relationships between social and financial performance can be in large part rationalized by multi-factor models for explaining the cross-sectional variation in returns, but not by industry effects.
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Volume (Year): 35 (2006)
Issue (Month): 3 (Autumn)
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