Why Do Investors Trade Around Social Rating Announcements?

32 Pages Posted: 17 Sep 2012 Last revised: 5 Nov 2012

See all articles by Alexis Cellier

Alexis Cellier

University Paris-Est Créteil (UPEC)

Pierre CHOLLET

Université Montpellier I

Jean-Francois Gajewski

University Savoie Mont-Blanc, IREGE

Date Written: June 6, 2012

Abstract

This paper investigates the trading motives around Corporate Social Responsibility (CSR) rating announcements. Focusing on the European market, we use Vigeo ratings, which are disclosed almost every month, while others agencies like KLD rate whole firms annually. This periodicity enables us to use an event study methodology to measure abnormal trading volume associated with rating announcements. Controlling for endogeneity and causality this paper clearly shows that before the announcement trading volume drops sharply while it increases afterwards, both effects compensating. The willingness to trade depends on trading costs, prior private information and the information content of the announcement. Our results show no effect of aggregated scores (or their revision). We evidence that Business Behavior, Human Resources and some precise topics (as Executive Remuneration or Societal Behavior) influence significantly investors’ trades. Beyond financial information, CSR rating agencies produce valuable information used by investors. These results suggest that a broader dissemination of CSR rating should improve market quality.

Keywords: Corporate Social Responsability, Rating, Trading Volume, Event Study

JEL Classification: G11, G12, G14, L25, M14

Suggested Citation

Cellier, Alexis and CHOLLET, Pierre and Gajewski, Jean-Francois, Why Do Investors Trade Around Social Rating Announcements? (June 6, 2012). 29th International Conference of the French Finance Association (AFFI) 2012. Available at SSRN: https://ssrn.com/abstract=2079125 or http://dx.doi.org/10.2139/ssrn.2079125

Alexis Cellier (Contact Author)

University Paris-Est Créteil (UPEC) ( email )

61 avenue du General de Gaulle
Creteil cedex, 94010
France

Pierre CHOLLET

Université Montpellier I ( email )

Avenue de la Mer Site Richter
163 Rue Auguste Broussonnet
Montpellier, Cedex 2 34090
France

Jean-Francois Gajewski

University Savoie Mont-Blanc, IREGE ( email )

4 Chemin de Bellevue
BP 80439
Annecy-le-Vieux, 74944
France
33 6 10 32 71 06 (Phone)
33 4 50 09 24 39 (Fax)

HOME PAGE: http://www.univ-savoie.fr/

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