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

See all articles by Lei Gao

Lei Gao

Iowa State University

Jie He

University of Georgia - Department of Finance

J. (Julie) Wu

University of Nebraska - Lincoln

Date Written: December 28, 2018

Abstract

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

Suggested Citation

Gao, Lei and He, Jie and Wu, J. (Julie), Standing Out from the Crowd via Corporate Social Responsibility: Evidence from Non-Fundamental-Driven Price Pressure (December 28, 2018). Available at SSRN: https://ssrn.com/abstract=2830742 or http://dx.doi.org/10.2139/ssrn.2830742

Lei Gao

Iowa State University ( email )

613 Wallace Road
Ames, IA 50011-2063
United States

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 )

Lincoln, NE 68588
United States

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