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Is there a Gold Social Seal? The Financial Effects of Additions to and Deletions from Social Stock Indices

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  • Konstantina Kappou

    (ICMA Centre, Henley Business School, University of Reading)

  • Ioannis Oikonomou

    (ICMA Centre, Henley Business School, University of Reading)

Abstract

This study investigates the financial effects of additions to and deletions from two of the most well-known social stock indices: the Calvert social index and the MSCI KLD 400 index. By examining not only short-term abnormal returns but also trading activity, earnings per share and long-term performance of stocks that are involved in these events, we are able to shed new light on the characteristics of the 'social index effect'. We find that the addition of a stock to either index does not lead to material changes in its market price, whereas deletions are accompanied by negative cumulative abnormal returns of approximately -1.5% in the short run that can reach -14% six months after the event. Trading volumes for deleted stocks are significantly increased on the event date and operational performance of the respective firms deteriorates after their deletion from the social index. These findings are consistent with the asymmetric financial effects of corporate social performance that are connected to social index re-compositions.

Suggested Citation

  • Konstantina Kappou & Ioannis Oikonomou, 2012. "Is there a Gold Social Seal? The Financial Effects of Additions to and Deletions from Social Stock Indices," ICMA Centre Discussion Papers in Finance icma-dp2012-10, Henley Business School, University of Reading.
  • Handle: RePEc:rdg:icmadp:icma-dp2012-10
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    File URL: http://www.icmacentre.ac.uk/files/discussion-papers/DP2012-10.pdf
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    9. Konstantina Kappou, 2018. "The diminished effect of index rebalances," Journal of Asset Management, Palgrave Macmillan, vol. 19(4), pages 235-244, July.
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    More about this item

    Keywords

    Social Index; Index Effect; Corporate Social Responsibility; CSR; CSP; Market Efficiency; Information Content Hypothesis; Exchange Traded Funds; Mutual Funds.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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