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Does Corporate Social Responsibility Reduce Local Bias?

29 Pages Posted: 28 Jun 2017 Last revised: 29 Aug 2017

Taylan Mavruk

University of Gothenburg - Centre for Finance - School of Business, Economics and Law

Date Written: August 28, 2017

Abstract

This paper examines the relation between CSR news releases and local bias. I identify 44 CSR words that are used in the previous literature and examine the effects when these words appear in the media. The results show that CSR news about the firms reduces firm level local bias. Moreover, I show that the CSR news is positively related to the firm value. In the short-run of three calendar days CSR news predicts negative cumulative abnormal returns (CARs). The CARs turn positive after day 3 and are persistent up to day 7. The unique contribution in this paper is that I identify some CSR concepts that consistently predict CARs. The words, ‘disaster aid’ and ‘risk minimizing’ consistently predict positive CARs. The word ‘biological diversity’ is the strongest negative predictor of CARs among all the CSR words and its effects are persistent up to 5 calendar days. Taken all together, firms do not seem to suffer financially for engaging in CSR activities.

Keywords: Corporate Social Responsibility, Information Asymmetry, Local Bias, Cumulative Abnormal Returns

JEL Classification: M14, G30

Suggested Citation

Mavruk, Taylan, Does Corporate Social Responsibility Reduce Local Bias? (August 28, 2017). Swedish House of Finance Research Paper No. 17-13. Available at SSRN: https://ssrn.com/abstract=2993745

Taylan Mavruk (Contact Author)

University of Gothenburg - Centre for Finance - School of Business, Economics and Law ( email )

Vasagatan 1
Gothenburg, 40530
Sweden

HOME PAGE: http://www.cff.handels.gu.se/faculty-presentation/taylan-mavruk/

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