Do Markets Value Corporate Social Responsibility in the United Kingdom?

Abstract

In this paper, using corporate social responsibility (CSR) measures constructed from EIRIS data and mapped onto Environment, Employee and Community dimensions, as well as a Composite indicator, we show that all two out of the three dimensions of CSR, together with the Composite measure, are positively valued by markets. We show that these effects are robust to alternative deflation measures, and that CSR effects are manifested at least in part by an increased persistence in abnormal earnings. Finally we show that the long-run growth in residual income implied by prices is higher in the case of high CSR engagement firms compared to zero engagement firms for our Composite indicator. Overall, our results are consistent with CSR engagement enhancing shareholder value.

Keywords: Corporate Social Responsibility, Value Relevance, Shareholder Value

JEL Classification: G30, G32