Does Community and Environmental Responsibility Affect Firm Risk? Evidence from UK Panel Data 1994-2006

34 Pages Posted: 18 Aug 2009 Last revised: 7 Jul 2010

See all articles by A. Salama

A. Salama

University of Newcastle - Business School

Keith P. Anderson

The York Management School

Steve Toms

University of Leeds - Leeds University Business School (LUBS); University of Leeds - Division of Accounting and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: May 27, 2010

Abstract

The question of how an individual firm’s social and environmental performance impacts its firm risk has not been examined in any empirical UK research. Does a company that strives to attain good environmental performance decrease its market risk or is environmental performance just a disadvantageous cost that increases such risk levels for these firms? Answers to this question have important implications for the management of companies and the investment decisions of individuals and institutions. The purpose of this paper is to examine the relationship between corporate environmental performance and firm risk in the British context. Using the largest dataset so far assembled, with Community and Environmental Responsibility (CER) rankings for all rated UK companies between 1994 and 2006, we show that a company’s environmental performance is inversely related to its systematic financial risk. However, an increase of 1.0 in the CER score is associated with only a 0.028 reduction in its beta.

Keywords: Corporate social responsibility, ethical investing, beta, financial risk

JEL Classification: G10, G14, M14, M20

Suggested Citation

Salama, Aly and Anderson, Keith P. and Toms, Steve, Does Community and Environmental Responsibility Affect Firm Risk? Evidence from UK Panel Data 1994-2006 (May 27, 2010). Available at SSRN: https://ssrn.com/abstract=1457146 or http://dx.doi.org/10.2139/ssrn.1457146

Aly Salama (Contact Author)

University of Newcastle - Business School ( email )

Newcastle upon Tyne, NE1 4SE
United Kingdom

Keith P. Anderson

The York Management School ( email )

York YO10 5DD
United Kingdom

Steve Toms

University of Leeds - Leeds University Business School (LUBS) ( email )

Leeds LS2 9JT
United Kingdom

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom

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