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Investor Tastes, Corporate Behavior, and Stock Returns: An Analysis of Corporate Social Responsibility

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  • Chuan Yang Hwang

    (College of Management, National Taiwan University, Taipei City 10617, Taiwan; Nanyang Business School, Nanyang Technological University, Singapore 639798, Singapore)

  • Sheridan Titman

    (McCombs School of Business, The University of Texas at Austin, Austin, Texas 78712)

  • Ying Wang

    (School of Finance, Central University of Finance and Economics, Beijing 100081, China)

Abstract

We classify institutions into socially responsible investors (SRI) and not socially responsible investors using the value weighted corporate social responsibility (CSR) scores of their portfolio holdings. We find that firms that exhibit increases in SRI ownership tend to increase future CSR scores. Our analysis of stock price responses to the revelation of SRI ownership changes indicates that the revelation of higher SRI ownership is associated with negative stock returns. These effects are particularly strong when we focus on SRI-activists, who tend to target firms with low CSR scores and lobby to increase them over time. These observations are consistent with the hypothesis that anticipated increases in CSR activities reduce firm values.

Suggested Citation

  • Chuan Yang Hwang & Sheridan Titman & Ying Wang, 2022. "Investor Tastes, Corporate Behavior, and Stock Returns: An Analysis of Corporate Social Responsibility," Management Science, INFORMS, vol. 68(10), pages 7131-7152, October.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:10:p:7131-7152
    DOI: 10.1287/mnsc.2021.4179
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    References listed on IDEAS

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