Is There a Gold Social Seal? The Financial Effects of Additions To and Deletions from Social Stock Indices
University of Reading, Henley Business School, ICMA Centre Discussion Papers in Finance DP2012-10.
40 Pages Posted: 20 Oct 2012 Last revised: 21 Oct 2014
Date Written: October 18, 2012
This study investigates the financial effects of additions to and deletions from two of the most well-known social stock indices: the Calvert social index and the MSCI KLD 400 index. By examining not only short-term abnormal returns but also trading activity, earnings per share and long-term performance of stocks that are involved in these events, we are able to shed new light on the characteristics of the “social index effect”. We find that the addition of a stock to either index does not lead to material changes in its market price, whereas deletions are accompanied by negative cumulative abnormal returns of approximately -1.5% in the short run that can reach -14% six months after the event. Trading volumes for deleted stocks are significantly increased on the event date and operational performance of the respective firms deteriorates after their deletion from the social index. These findings are consistent with the asymmetric financial effects of corporate social performance that are connected to social index re-compositions.
Note: This is a preliminary version of the paper published in Journal of Business.
Keywords: Social Index, Index Effect, Corporate Social Responsibility, CSR, CSP, Market Efficiency, Information Content Hypothesis, Exchange Traded Funds, Mutual Funds
JEL Classification: G14, G32, M14
Suggested Citation: Suggested Citation