Standing Out from the Crowd via Corporate Social Responsibility: Evidence from Non-Fundamental-Driven Price Pressure
51 Pages Posted: 29 Aug 2016 Last revised: 15 Jan 2019
Date Written: December 28, 2018
Prior literature proposes that firms can use corporate social responsibility (CSR) activities to signal their quality to investors and other stakeholders. We test this prediction by identifying exogenous situations that call for signaling. Using two independent quasi-natural experiments that impose non-fundamental-driven negative pressure on stock prices, we find that firms under such adverse circumstances engage more in CSR than otherwise similar firms. These effects are more pronounced among firms with stronger signaling needs, namely, those facing greater information asymmetry and operating in more competitive product markets. We also find evidence that signaling via CSR helps lower cost of equity capital.
Keywords: Corporate Social Responsibility (CSR), Social Capital, Corporate Goodness, Regulation SHO, Signaling, Short Sale Constraints
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