What Drives a Firm's ES Performance? Evidence from Stock Returns

Abstract

This study empirically explores the dynamic relation between the environmental and social (ES) performance of a firm and its stock market returns. We find robust evidence that worse stock market performance increases firms’ efforts on ES activities. We show these patterns are present in firms more susceptible to customer awareness, firms with more financial slacks, and when social trust in those firms is unexpectedly low, which is consistent with the view that firms engage in ES activities to rebuild their image. Where social trust and customer awareness are of less concern, corporate ES activities could harm future stock returns. Further, we demonstrate that poor short-term stock performance can lead to better voting outcomes for ES shareholder proposals.

Keywords: CSR, ES Performance, Stock Returns

JEL Classification: G12, G23, G32