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Corporate social responsibility and shareholder's value: an empirical analysis

  • Becchetti , Leonardo
  • Ciciretti , Rocco
  • Hasan, Iftekhar

    ()

    (Lally School of Management, Rensselaer Polytechnic Institute and Bank of Finland Research)

In today’s global economy, corporate social responsibility (CSR) is a core component of corporate strategy. Due in part to financial scandals, losses, and the diminished reputation of the affected listed companies, CRS is emerging as a crucial instrument for minimizing conflicts with stakeholders. While corporations are busy adopting and enhancing CSR practices, there is (beyond a very few notable exceptions) no established empirical research on its impact and relevance for the capital market. Our paper investigates this issue by tracing market reactions to corporate entry into and exit from the Domini 400 Social Index (a recognized CSR benchmark) between 1990 and 2004. Our paper highlights two main findings: i) a significant upward trend in absolute values of abnormal returns, irrespective of the event (entry/exit vis-à-vis the index) type; and ii) a significant negative effect on abnormal returns after announcement from the Domini index. The latter effect continues to persist even after controlling for concurring financial distress shocks and stock market seasonality.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0901netti.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 1/2009.

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Length: 50 pages
Date of creation: 19 Jan 2009
Date of revision:
Handle: RePEc:hhs:bofrdp:2009_001
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/

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  1. Tirole, Jean, 1999. "Corporate Governance," CEPR Discussion Papers 2086, C.E.P.R. Discussion Papers.
  2. Kreps, David M, 1997. "Intrinsic Motivation and Extrinsic Incentives," American Economic Review, American Economic Association, vol. 87(2), pages 359-64, May.
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  9. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
  10. Bernanke, Ben & Gertler, Mark, 1990. "Financial Fragility and Economic Performance," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 87-114, February.
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  12. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
  13. Bauer, Bob & Koedijk, Kees & Otten, Roger, 2002. "International Evidence on Ethical Mutual Fund Performance and Investment Style," CEPR Discussion Papers 3452, C.E.P.R. Discussion Papers.
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