Corporate Social Responsibility and the Market Reaction to Negative Events: Evidence from Inadvertent and Fraudulent Restatement Announcements

The Accounting Review, Forthcoming March 2021

56 Pages Posted: 24 Feb 2020 Last revised: 28 Apr 2020

See all articles by Eli Bartov

Eli Bartov

NYU Stern School of Business

Antonio Marra

Bocconi University - Department of Accounting

Francesco Momente'

Bocconi University - Department of Accounting

Date Written: December 8, 2019

Abstract

We advance a theory asserting that CSR performance may exacerbate, not necessarily moderate, a company’s negative stock-price response to negative events. In testing this theory, we hypothesize and find that CSR performance alleviates (magnifies) the immediate negative market response to inadvertent (fraudulent) restatement announcements, and that these findings are robust to specifications that consider alternative CSR measures and a multitude of control variables shown by prior research to have explanatory power for the cross sectional variation in stock returns. Overall, using restatement announcements as a channel through which CSR performance may affect company value, we show, in contrast to prior research, that depending on management conduct leading to the restatement, a company’s CSR performance may destroy, not necessarily enhance, firm value. Our findings may, thus, inform researchers, market participants, and regulators.

Keywords: negative events; accounting restatements; corporate social responsibility; accounting fraud; inadvertent accounting errors.

Suggested Citation

Bartov, Eli and Marra, Antonio and Momente', Francesco, Corporate Social Responsibility and the Market Reaction to Negative Events: Evidence from Inadvertent and Fraudulent Restatement Announcements (December 8, 2019). The Accounting Review, Forthcoming March 2021, Available at SSRN: https://ssrn.com/abstract=3534722 or http://dx.doi.org/10.2139/ssrn.3534722

Eli Bartov

NYU Stern School of Business ( email )

44 W. 4th Street, Suite 10-96
New York, NY 10012
United States
212.998.0016 (Phone)

Antonio Marra (Contact Author)

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136
Italy

Francesco Momente'

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136
Italy

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