Does the Indian Stock Market Encourage Socially Responsible Companies?

Manthan Journal of Commerce and Management, Vol 01 No. 01, pp. 1-34, 2014

26 Pages Posted: 2 May 2015

See all articles by K. V. Bhanu Murthy

K. V. Bhanu Murthy

University of Delhi - School of Economics - Commerce Department; Delhi Technological University

Varun Bhandari

University of Delhi - Department of Commerce

Vishal Pandey

University of Delhi, Department of Commerce

Date Written: February 28, 2013

Abstract

The primary purpose of this paper is to examine whether socially responsible companies are performing better than general companies in terms of price discovery and returns in the stock markets. Paradigm shift has taken place over time which has led to the emergence of conceptual framework of Corporate Responsibility which provides holistic approach towards Governance, Corporate Social Responsibility and Environmental Accountability. We expect that social responsibility has a distinct and positive effect on the security prices in the stock market.

We have taken ESG index as proxy of socially responsible companies whereas NIFTY index has been taken as the proxy of general companies to examine the price discovery process in both the indices in terms of growth rate as a whole and during breaks. For this we have conducted semi-log regression analysis. We also conducted paired samples t-test to check whether there is significant difference between the returns of two indices or not.

We observed that price discovery process is better in ESG index than NIFTY index. The returns of ESG index are also more. This implies that socially responsible companies are outperforming general companies both in terms of price discovery and returns for the whole period and for crisis and post-crisis period. We arrived at conclusion that due to crisis the investors have become sensitised to social responsibility and have begun to absorb and internalise the behaviour of socially responsible companies.

Keywords: Business Ethics, Corporate Responsibility, Corporate Social Responsibility, Efficient Market Hypothesis, ESG Index, NIFTY Index, Price Discovery Process

JEL Classification: D02, D21, D64, G14, M14

Suggested Citation

Murthy, K. V. Bhanu and Bhandari, Varun and Pandey, Vishal, Does the Indian Stock Market Encourage Socially Responsible Companies? (February 28, 2013). Manthan Journal of Commerce and Management, Vol 01 No. 01, pp. 1-34, 2014, Available at SSRN: https://ssrn.com/abstract=2601304

K. V. Bhanu Murthy (Contact Author)

University of Delhi - School of Economics - Commerce Department ( email )

59 Vaishali Enclave
Pitampura
Delhi, 110034
India
+91 11 27667891 (Phone)

Delhi Technological University ( email )

Delhi
India

Varun Bhandari

University of Delhi - Department of Commerce ( email )

University Road
Delhi, 110 007
India

Vishal Pandey

University of Delhi, Department of Commerce ( email )

Department of Commerce
Delhi University
Delhi, 110007
India
+919810248845 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
182
Abstract Views
791
rank
224,097
PlumX Metrics