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Corporate Social Responsibility and Stock Market Performance

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Abstract

We analyze the performance of a large sample of SR stocks relative to a control sample of equivalent size for 14 years. We find that individual SR stocks have on average significantly lower returns and unconditional variance than control sample stocks when controlling for industry effects. This result is paralleled by descriptive evidence on the lower (daily return) mean and variance of the buy-and-hold strategies on the SR portfolio with respect to those on the control portfolio. Beyond this first evidence we discover that: i) individual SR stocks are significantly less risky when controlling for conditional heteroskedasticity; ii) there are no significant differences in risk adjusted returns between the two buy and hold strategies on (SR and control sample) portfolios; iii) the buy-and-hold strategies on the SR portfolio exhibits significantly lower exposition to systematic non-diversifiable risk. These last findings are robust to different - market model, GARCH(1,1), APARCH(1,1) - model specifications.

Suggested Citation

  • Leonardo Becchetti & Rocco Ciciretti, 2006. "Corporate Social Responsibility and Stock Market Performance," CEIS Research Paper 79, Tor Vergata University, CEIS, revised 22 Mar 2006.
  • Handle: RePEc:rtv:ceisrp:79
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    References listed on IDEAS

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    1. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
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    Cited by:

    1. Scholtens, Bert, 2008. "A note on the interaction between corporate social responsibility and financial performance," Ecological Economics, Elsevier, vol. 68(1-2), pages 46-55, December.
    2. Marco Nicolosi & Stefano Grassi & Elena Stanghellini, 2014. "Item response models to measure corporate social responsibility," Applied Financial Economics, Taylor & Francis Journals, vol. 24(22), pages 1449-1464, November.
    3. Crifo, Patricia & Forget, Vanina D. & Teyssier, Sabrina, 2015. "The price of environmental, social and governance practice disclosure: An experiment with professional private equity investors," Journal of Corporate Finance, Elsevier, vol. 30(C), pages 168-194.
    4. Leonardo Becchetti & Nazaria Solferino & Maria Elisabetta Tessitore, 2016. "Corporate social responsibility and profit volatility: theory and empirical evidence," Industrial and Corporate Change, Oxford University Press, vol. 25(1), pages 49-89.
    5. Nollet, Joscha & Filis, George & Mitrokostas, Evangelos, 2016. "Corporate social responsibility and financial performance: A non-linear and disaggregated approach," Economic Modelling, Elsevier, vol. 52(PB), pages 400-407.
    6. Koh, SzeKee & Durand, Robert B. & Limkriangkrai, Manapon, 2015. "The value of Saints and the price of Sin," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 56-72.
    7. repec:pal:assmgt:v:19:y:2018:i:3:d:10.1057_s41260-017-0073-4 is not listed on IDEAS
    8. repec:eme:srjpps:v:12:y:2016:i:3:p:613-624 is not listed on IDEAS
    9. Jaja Suteja & Ardi Gunardi & Annisa Mirawati, 2016. "Moderating Effect of Earnings Management on the Relationship Between Corporate Social Responsibility Disclosure and Profitability of Banks in Indonesia," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1360-1365.
    10. Shunsuke Managi & Tatsuyoshi Okimoto & Akimi Matsuda, 2012. "Do socially responsible investment indexes outperform conventional indexes?," Applied Financial Economics, Taylor & Francis Journals, vol. 22(18), pages 1511-1527, September.
    11. Teresa Czerwinska, 2012. "The effectiveness of Social Responsible Investment on the stock market (Efektywnosc inwestycji spolecznie odpowiedzialnych na rynku akcji)," Problemy Zarzadzania, University of Warsaw, Faculty of Management, vol. 10(39), pages 129-140.
    12. Leonardo Becchetti, 2012. "Voting with the wallet," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 59(3), pages 245-268, September.
    13. Cristiana Mǎnescu, 2011. "Stock returns in relation to environmental, social and governance performance: Mispricing or compensation for risk?," Sustainable Development, John Wiley & Sons, Ltd., vol. 19(2), pages 95-118, March/Apr.
    14. Ntim, Collins G., 2016. "Corporate governance, corporate health accounting, and firm value: The case of HIV/AIDS disclosures in Sub-Saharan Africa," The International Journal of Accounting, Elsevier, vol. 51(2), pages 155-216.
    15. Wu, Meng-Wen & Shen, Chung-Hua, 2013. "Corporate social responsibility in the banking industry: Motives and financial performance," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3529-3547.
    16. Jean-michel Sahut & Medhi Mili & Sana Ben Tekaya & Frédéric Teulon, 2016. "Financial Impacts and antecedents of CSR: a PLS Path Modelling Approach," Economics Bulletin, AccessEcon, vol. 36(2), pages 736-751.
    17. Luca Lambertini & Arsen Palestini & Alessandro Tampieri, 2014. "CSR in an Asymmetric Duopoly with Environmental Externalities," CREA Discussion Paper Series 14-19, Center for Research in Economic Analysis, University of Luxembourg.
    18. Leonardo Becchetti, 2013. "Ethical finance: an introduction," Chapters,in: Handbook on the Economics of Reciprocity and Social Enterprise, chapter 13, pages 134-143 Edward Elgar Publishing.
    19. Peter Huber & Eva Abramuszkinová Pavlíková & Marcela Basovníková, 2017. "The Impact of CSR Certification on Firm Profitability, Wages and Sales," WIFO Working Papers 535, WIFO.
    20. Sadorsky, Perry, 2014. "Modeling volatility and conditional correlations between socially responsible investments, gold and oil," Economic Modelling, Elsevier, vol. 38(C), pages 609-618.

    More about this item

    Keywords

    Corporate Social Responsibility – Conditional Volatility – Portfolio Choice;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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