Corporate Social Performance, Competitive Advantage, Earnings Persistence and Firm Value

28 Pages Posted: 21 Mar 2016

See all articles by Alan Gregory

Alan Gregory

University of Exeter - Xfi Centre; University of Exeter Business School

Julie M. Whittaker

University of Exeter Business School

Xiaojuan Yan

University of Exeter

Date Written: January-February 2016

Abstract

In this paper, using a generalised valuation framework inspired by Ohlson, we show that corporate social performance (CSP) is value relevant and that, in particular, it appears to be associated with a higher coefficient on earnings. This could be attributable to either a lower cost of equity for these firms, or greater earnings persistence. We show that, once industry membership is controlled for, any cost of capital effect is minimal. Regression tests based on realised earnings confirm that the valuation effect is attributable mainly to greater earnings persistence in firms with higher levels of CSP. These outcomes are consistent with higher CSP conferring a competitive advantage on firms.

Keywords: corporate social responsibility, corporate social performance, competitive advantage, value relevance, earnings persistence

Suggested Citation

Gregory, Alan and Whittaker, Julie M. and Yan, Xiaojuan, Corporate Social Performance, Competitive Advantage, Earnings Persistence and Firm Value (January-February 2016). Journal of Business Finance & Accounting, Vol. 43, Issue 1-2, pp. 3-30, 2016, Available at SSRN: https://ssrn.com/abstract=2752184 or http://dx.doi.org/10.1111/jbfa.12182

Alan Gregory (Contact Author)

University of Exeter - Xfi Centre ( email )

University of Exeter
Xfi Building, Rennes Dr.
Exeter, EX4 3BZ
United Kingdom

University of Exeter Business School ( email )

Streatham Court
Xfi Building Rennes Dr.
Exeter, EX4 4JH
United Kingdom

Julie M. Whittaker

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

Xiaojuan Yan

University of Exeter ( email )

Northcote House
The Queen's Drive
Exeter, Devon EX4 4QJ
United Kingdom

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