The Effect of CSR on Stock Performance: New Evidence for the USA and Europe

CER-ETH - Center of Economic Research at ETH Zurich, Working Paper No. 08/85

43 Pages Posted: 8 Mar 2008 Last revised: 18 Nov 2009

See all articles by Urs von Arx

Urs von Arx

ETH Zürich; University of Zurich - Center für Nachhaltigkeit und unternehmerische Verantwortung (CCRS)

Andreas Ziegler

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); University of Zurich

Date Written: May 2008

Abstract

This paper provides new empirical evidence for the effect of corporate social responsibility (CSR) on corporate financial performance. In contrast to former studies, we examine two different regions, namely the USA and Europe. Our econometric analysis shows that environmental and social activities of a firm compared with other firms within the industry are valued by financial markets in both regions. However, the respective positive effects on average monthly stock returns between 2003 and 2006 appear to be more robust in the USA and, in addition, to be nonlinear. Our analysis furthermore points to biased parameter estimations if incorrectly specified econometric models are applied: The seemingly significantly negative effect of environmental and social performance of the industry to which a firm belongs vanishes if the explanation of stock performance is based on the Fama-French three-factor or the Carhart four-factor models instead of the simple Capital Asset Pricing Model.

Keywords: Corporate social responsibility, Environmental performance, Financial performance, Asset pricing models

JEL Classification: Q56, M14, G12, Q01

Suggested Citation

von Arx, Urs and Ziegler, Andreas, The Effect of CSR on Stock Performance: New Evidence for the USA and Europe (May 2008). CER-ETH - Center of Economic Research at ETH Zurich, Working Paper No. 08/85, Available at SSRN: https://ssrn.com/abstract=1102528 or http://dx.doi.org/10.2139/ssrn.1102528

Urs Von Arx

ETH Zürich ( email )

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University of Zurich - Center für Nachhaltigkeit und unternehmerische Verantwortung (CCRS) ( email )

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Andreas Ziegler (Contact Author)

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

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Zurich, 8032
Switzerland
+41 (0) 44632 0398 (Phone)
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University of Zurich

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Zurich, 8001
Switzerland
+41 (0) 44634 4020 (Phone)
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