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Corporate Social Responsibility as a Risk Factor in Asset Pricing: Evidence from Multi-Factor Models

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  • Ioannis Karakostas

Abstract

This study investigates the influence of Corporate Social Responsibility (CSR) on financial returns and its role as a potential risk factor in investment decisions. Using CSR rating data from the MSCI database, the research analyzes a sample of up to 2,365 companies over 26 years (1992 to 2018), yielding 26,918 firm-year observations. Firms are categorized into portfolios based on six risk factors, with industry classification using the Global Industry Classification Standard (GICS) and the Fama-French 49 Industry Classification (FF49). The analysis employs five asset pricing models- the Capital Asset Pricing Model (CAPM), the Fama-French three-factor model (FF3F), the Carhart four-factor model (CAR4F), the Fama-French five-factor model (FF5F), and an augmented six-factor model (A6FM), estimated via the Fama-MacBeth two-step procedure. Two distinct methodological approaches are used to construct CSR risk factor variables. Empirical findings indicate that CSR exerts a statistically significant influence on excess stock returns across multiple models and portfolio configurations, with consistent results observed in both simple and value-weighted portfolios. A total of 150 double-sorted portfolios is constructed to assess abnormal returns across five financial characteristics, namely Size, Value, Profitability, Investment, and Momentum, under three CSR classifications- High/Low, Good/Bad, and Yes/No. Results reveal that portfolio performance varies systematically with CSR rating, with important implications for portfolio managers, investors, and corporate governance stakeholders seeking to integrate sustainability into financial decision-making.

Suggested Citation

  • Ioannis Karakostas, 2026. "Corporate Social Responsibility as a Risk Factor in Asset Pricing: Evidence from Multi-Factor Models," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 18(6), pages 1-59, June.
    • Handle: RePEc:ibn:ijefaa:v:18:y:2026:i:6:p:59
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    References listed on IDEAS

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    1. Sandra A. Waddock & Samuel B. Graves, 1997. "The Corporate Social Performance–Financial Performance Link," Strategic Management Journal, Wiley Blackwell, vol. 18(4), pages 303-319, April.
    2. Veronika V. Yankovskaya & Timur A. Mustafin & Dmitry A. Endovitsky & Artem V. Krivosheev, 2022. "Corporate Social Responsibility as an Alternative Approach to Financial Risk Management: Advantages for Sustainable Development," Risks, MDPI, vol. 10(5), pages 1-18, May.
    3. Mohammed Benlemlih & Mohammad Bitar, 2018. "Corporate Social Responsibility and Investment Efficiency," Post-Print halshs-01321227, HAL.
    4. Dyck, Alexander & Lins, Karl V. & Roth, Lukas & Wagner, Hannes F., 2019. "Do institutional investors drive corporate social responsibility? International evidence," Journal of Financial Economics, Elsevier, vol. 131(3), pages 693-714.
    5. Mohammed Benlemlih & Mohammad Bitar, 2018. "Corporate Social Responsibility and Investment Efficiency," Journal of Business Ethics, Springer, vol. 148(3), pages 647-671, March.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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