Corporate Social Responsibility, Investor Behaviors, and Stock Market Returns: Evidence from a Natural Experiment in China

Posted: 23 Jan 2011 Last revised: 16 Aug 2013

See all articles by Maobin Wang

Maobin Wang

University of International Business and Economics - School of Banking and Finance

Chun Qiu

McGill University - Desautels Faculty of Management

Dongmin Kong

Department of Finance, Huazhong University of Science and Technology; School of Finance, Zhongnan University of Economics and Law

Date Written: January 22, 2011

Abstract

This article studies how financial investors respond to firms’ corporate social responsibility (CSR) performance in terms of their investing behaviors, and how such behaviors change contingent on an event that provokes their attention and concerns to CSR. Using the melamine contamination incident in China as a natural experiment, it is found that neither the individual investors’ nor the institutional investors’ behaviors are influenced by firms’ CSR performance before the incident. Nevertheless, in the post-event period, institutional investors’ behaviors are significantly influenced by firms’ CSR performance that exceeds a certain threshold. Furthermore, such an effect diminishes for a better CSR performance. In comparison, the authors do not find any effects of CSR performance on individual investors, either before the event or after the event. Finally, firms’ performance and investors’ behaviors jointly affect firms’ stock returns after the event but not before the event. This article reconciles the mixed findings in the literature on the effect of firms’ CSR performance on their financial performance by showing that such an effect exists in a contingent manner. Furthermore, the authors show that a too low or a too high CSR performance could lead to undesirable responses from investors. Therefore, managers should pay attention to optimizing firms’ CSR activities.

Keywords: Corporate Social Responsibility, Financial Performance, Stock Markets, Event Study, Investors’ Behaviors, Emerging Markets, Chinese Stock Market

Suggested Citation

Wang, Maobin and Qiu, Chun and Kong, Dongmin, Corporate Social Responsibility, Investor Behaviors, and Stock Market Returns: Evidence from a Natural Experiment in China (January 22, 2011). Journal of Business Ethics, Vol. 101, pp. 127-141, 2011, Available at SSRN: https://ssrn.com/abstract=1745431

Maobin Wang (Contact Author)

University of International Business and Economics - School of Banking and Finance ( email )

Beijing, 100029
China

Chun Qiu

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Dongmin Kong

Department of Finance, Huazhong University of Science and Technology ( email )

Wuhan, Hubei 430074
China

School of Finance, Zhongnan University of Economics and Law ( email )

Wuhan, Hubei 430073
China

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