The Impact of Corporate Social Performance on Financial Risk and Utility: A Longitudinal Analysis

Financial Management Volume 41, Issue 2, pages 483–515, Summer 2012

41 Pages Posted: 9 Nov 2012

See all articles by Ioannis Oikonomou

Ioannis Oikonomou

University of Reading - ICMA Centre

Chris Brooks

University of Reading - ICMA Centre

Stephen Pavelin

University of Bath - School of Management; University of Reading - Department of Economics

Date Written: October 1, 2010

Abstract

This study focuses on the wealth-protective effects of socially responsible firm behavior by examining the association between corporate social performance (CSP) and financial risk for an extensive panel data sample of S&P 500 companies between the years 1992 and 2009. In addition, the link between CSP and investor utility is investigated. The main findings are that corporate social responsibility is negatively but weakly related to systematic firm risk and that corporate social irresponsibility is positively and strongly related to financial risk. The fact that both conventional and downside risk measures lead to the same conclusions adds convergent validity to the analysis. However, the risk-return trade-off appears to be such that no clear utility gain or loss can be realized by investing in firms characterized by different levels of social and environmental performance. Overall volatility conditions of the financial markets are shown to play a moderating role in the nature and strength of the CSP-risk relationship.

Keywords: Corporate Social Responsibility, CSR, CSP, Financial Risk, Utility Measures, Panel Data, S&P 500

JEL Classification: C33, G32, M14

Suggested Citation

Oikonomou, Ioannis and Brooks, Chris and Pavelin, Stephen, The Impact of Corporate Social Performance on Financial Risk and Utility: A Longitudinal Analysis (October 1, 2010). Financial Management Volume 41, Issue 2, pages 483–515, Summer 2012. Available at SSRN: https://ssrn.com/abstract=2172742

Ioannis Oikonomou (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Chris Brooks

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 118 931 82 39 (Phone)
+44 118 931 47 41 (Fax)

Stephen Pavelin

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

University of Reading - Department of Economics ( email )

Reading, RG6 6AA
United Kingdom

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