Corporate Social Responsibility, Environmental Pollution, and Stock Market Reaction

Purpose: This paper analyzes whether and how the environmental protection concern of corporate social responsibility companies affects market participants’ perceptions by examining the nature and structure of corporate social responsibility companies. Design/methodology/approach: I begin constructing my sample by hand-collecting data related to the material information of environmental pollution issues and the list of corporate social responsibility companies from the Market Observation Post System, the Gre Tai Securities Market, and the companies’ websites. The sample period began in 2007 because it was at that time that information related to corporate social responsibility activities became available. Then, I use the multivariate regression analysis to test research questions. Finding: Empirical findings indicate that a statistically significant relation between material pollution concerns of corporate social responsibility companies and their subsequent negative stock performance. But, when such corporate social responsibility companies have a complete mechanism or corporate governance environment to support corporate social responsibility engagements, they are less likely to receive the subsequent negative stock performance. After considering the corporate social responsibility foundation, there is no evidence of corporate social responsibility foundation supporting to modulate the negative shock of pollution concerns. However, empirical results seem to imply that market participants give a higher tolerance for the companies with corporate social responsibility foundation, and hence give them a slight negative impact on market returns. Research limitations/implications: Due to the costs of hand-collection, the sample comprised 7,707 firm-year observations associated with Taiwan listed companies over the period from 2007 to 2012. Originality/value: From a theoretical perspective, this study provides a new perspective on the effect of corporate social responsibility concerns by examining environmental pollution cases. From a practical perspective, this study examines a rarely discussed issue on the effect of corporate social responsibility concerns and identifies a corporate social responsibility concern factor (environmental pollution) that influences market returns.