Standing out from the crowd via CSR engagement: Evidence from non-fundamental-driven price pressure

Journal of Financial and Quantitative Analysis

68 Pages Posted: 29 Aug 2016 Last revised: 19 Dec 2022

See all articles by Lei Gao

Lei Gao

George Mason University

Jie He

University of Georgia - Department of Finance

J. (Julie) Wu

University of Nebraska - Lincoln

Date Written: July 26, 2022

Abstract

We test the signaling view of corporate social responsibility (CSR) engagement using two complementary quasi-natural experiments that impose exogenous negative pressure on stock prices. Firms under such adverse price pressure increase CSR activities compared to otherwise similar firms. This effect concentrates among firms with stronger signaling incentives, namely, those facing greater information asymmetry, more product market competition, higher shareholder litigation risk, and higher stock price crash risk. Firms under the exogenous negative price pressure mainly improve CSR strengths, including costly environmental investments. We also find that CSR engagement attracts socially responsible investors and lowers cost of capital for signaling firms.

Keywords: Corporate Social Responsibility (CSR), ESG, Real Effects of Stock Markets, Regulation SHO, Signaling, Mutual Fund

Suggested Citation

Gao, Lei and He, Jie and Wu, J. (Julie), Standing out from the crowd via CSR engagement: Evidence from non-fundamental-driven price pressure (July 26, 2022). Journal of Financial and Quantitative Analysis, Available at SSRN: https://ssrn.com/abstract=2830742 or http://dx.doi.org/10.2139/ssrn.2830742

Lei Gao

George Mason University ( email )

Fairfax, VA 22030
United States

HOME PAGE: http://sites.google.com/view/lei-gao/home

Jie He

University of Georgia - Department of Finance ( email )

B318 Amos Hall
Terry College of Business, University of Georgia
Athens, GA 30602-6253
United States

J. (Julie) Wu (Contact Author)

University of Nebraska - Lincoln ( email )

730 N. 14th Street
Lincoln, NE 68588
United States

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