A two-level portfolio model based on expected values of corporate social responsibility

Modern economic theory believes that enterprises, one of the stock issuers in the financial market, serve as a fundamental "mechanism for resource allocation". The theory also holds that the mechanism can achieve the optimal allocation of the entire economic resources while simultaneously reducing the "transaction costs" of the entire society. However, the shortsightedness and profit-seeking nature of enterprises lead to enormous issues with economic development. These issues include excessive consumption of resources, continuous accumulation of industrial pollution, and the deteriorating ecological environment, triggering a series of social, environmental, and economic problems. Hence, solving the contradiction between economic growth and environmental protection, and achieving sustainable economic and social development has become an urgent problem to be solved. Corporate social responsibility receives increasing attention nowadays, and more and more scholars are carrying out their research. The present research constructs a multi-level portfolio model based on expected values of corporate social responsibility. In particular, the research utilizes the stock returns and corporate social responsibility performance of Chinese listed companies to analyze the relationship between them. The research shows that the stock returns of Chinese-listed companies are negatively correlated with their social responsibilities.