Corporate Social Responsibility and Shareholder's Value: An Event Study Analysis
University of Rome II - Faculty of Economics
University of Rome II - Department of Economics and Finance
Fordham University; Bank of Finland
January 22, 2009
FRB of Atlanta Working Paper No. 2007-6
Bank of Finland Research Discussion Paper No. 1/2009
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-a-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.
Number of Pages in PDF File: 53
Keywords: corporate social responsibility, event study
JEL Classification: G14, D21, L21
Date posted: September 6, 2006
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