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Which dimensions of social responsibility concern financial investors?

  • I. Girerd-Potin

    ((Axe de recherche : Finance) - CERAG - Centre d'études et de recherches appliquées à la gestion - Grenoble 2 UPMF - Université Pierre Mendès France - CNRS)

  • Sonia Jimenez-Garcès


    (COACTIS - UL2 - Université Lumière - Lyon 2 - Université Jean Monnet - Saint-Etienne)

  • P. Louvet

    ((Axe de recherche : Finance) - CERAG - Centre d'études et de recherches appliquées à la gestion - Grenoble 2 UPMF - Université Pierre Mendès France - CNRS - Grenoble 2 UPMF - Université Pierre Mendès France)

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    Social and environmental ratings provided by social rating agencies are multidimensional. Using the six sub-ratings provided by the Vigeo rating agency, we perform a principal component analysis and we highlight three main socially responsible (SR) dimensions related to (1) the direct non-financial stakeholders (employee, customers and suppliers), (2) the indirect stakeholders (environment and society) and (3) the financial stakeholders (stockholders and debt holders).We explore the link between stock returns and these three SR dimensions. Our main result is that, for each SR dimension, investors ask for an additional risk premium when they decide to hold non SR stocks. The cost of equity is thus lower for socially responsible firms. The average premium over the period 2003-2010 is larger for the components "direct non-financial stakeholders" and "financial stakeholders" than for the component "indirect stakeholders". For this last component, the premium obviously exists only since the end of 2008. Environment and community involvement have only recently become a more important risk factor in investors' minds. About the former risk premia ("direct non-financial stakeholders" and "financial stakeholders"), investors appear to penalize firms with the worst behavior in respect to their direct non-financial stakeholders and reward firms with good corporate governance practices

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    Paper provided by HAL in its series Post-Print with number halshs-00679629.

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    Date of creation: 2012
    Date of revision:
    Publication status: Published in Cahiers de Recherche du CERAG n° 2012-01 E2. 2012, 37 p
    Handle: RePEc:hal:journl:halshs-00679629
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    1. Stephen Brammer & Chris Brooks & Stephen Pavelin, 2006. "Corporate Social Performance and Stock Returns: UK Evidence from Disaggregate Measures," Financial Management, Financial Management Association, vol. 35(3), Autumn.
    2. Denis Dupré & Isabelle Girerd-Potin & Sonia Jimenez-Garces & Pascal Louvet, 2009. "Influence de la notation éthique sur l'évolution du prix des actions. Un modèle théorique," Revue économique, Presses de Sciences-Po, vol. 60(1), pages 5-31.
    3. Ron Bird & Anthony D. Hall & Francesco Momentè & Francesco Reggiani, 2007. "What Corporate Social Responsibility Activities are Valued by the Market?," Journal of Business Ethics, Springer, vol. 76(2), pages 189-206, December.
    4. El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck C.Y. & Mishra, Dev R., 2011. "Does corporate social responsibility affect the cost of capital?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2388-2406, September.
    5. D. Dupre & I. Girerd-Potin & S. Jimenez-Garces & P. Louvet, 2006. "Les investisseurs paient pour l'éthique : conviction ou prudence," Post-Print halshs-00118508, HAL.
    6. Galema, Rients & Plantinga, Auke & Scholtens, Bert, 2008. "The stocks at stake: Return and risk in socially responsible investment," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2646-2654, December.
    7. Edmans, Alex, 2011. "Does the stock market fully value intangibles? Employee satisfaction and equity prices," Journal of Financial Economics, Elsevier, vol. 101(3), pages 621-640, September.
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