Do Markets Value Corporate Social Responsibility?
Xfi Centre for Finance and Investment, University of Exeter Discussion Paper No. 10/06
52 Pages Posted: 12 Dec 2010 Last revised: 4 Jan 2012
Date Written: November 30, 2011
Renneboog, Ter Horst and Zhang (2008) highlight that the question of whether or not corporate social responsibility (CSR) is priced remains an open one. In this paper, using a comprehensive set of KLD indicators in Ohlson-model framework with robust two-way cluster analysis of standard errors, we show that indicators of corporate social responsibility are valued by markets. We also show that some valuation effects appear to be stronger in the post millennium period. Consistent with other evidence on implied cost of capital and CSR, we show that there are significant differences in factor loadings between high and low CSR stocks. Finally, we show that CSR effects are manifested at least in part by an increased persistence in abnormal earnings. Our evidence is consistent both with high CSR firms having a lower cost of capital and also with high CSR firms having lower expected adverse cash flow shocks.
Keywords: Corporate Social Responsibility, Socially Responsible Investment Returns, Valuation
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