The Value of Being Responsible in a Crisis: An Analysis of the European Market

39 Pages Posted: 19 Apr 2021

See all articles by Dina Ghanma

Dina Ghanma

University of Reading - ICMA Centre

Ioannis Oikonomou

University of Reading - ICMA Centre

Lisa Schopohl

ICMA Centre, Henley Business School, University of Reading

Simone Varotto

ICMA Centre - Henley Business School, University of Reading

Date Written: April 12, 2021

Abstract

In the Subprime Crisis of 2008/9, European firms with high Corporate Social Responsibility (CSR) scores had stock returns 1.8 to 2.6 percentage points higher than those with lower scores. This is believed to be the effect of social capital – an asset which becomes incrementally valuable during crises of trust. However, during the subsequent Sovereign Debt Crisis in 2011, we find the opposite to hold true. European firms with high CSR scores had stock returns which were roughly 1.6 percentage points lower than the returns of low CSR firms. We observe that the drastic change in the market response to CSR scores may be the result of the scores becoming a proxy for ESG “controversies” which could lead to legal disputes and fines. We find that using a new measure of social responsibility based on firms’ efforts to avoid controversies surrounding sustainability and conduct issues eliminates the return penalty previously observed with raw CSR scores. We conclude that European market participants have not ceased to value social capital in their investment decision making following the Subprime Crisis. Rather, in considering ESG measures beyond raw CSR scores, they have become shrewder in assessing true firm commitment to investment in social capital and are managing their portfolios accordingly.

Keywords: corporate social responsibility, ESG controversies, financial crises, stock returns

JEL Classification: G01, G11, G30

Suggested Citation

Ghanma, Dina and Oikonomou, Ioannis and Schopohl, Lisa and Varotto, Simone, The Value of Being Responsible in a Crisis: An Analysis of the European Market (April 12, 2021). Available at SSRN: https://ssrn.com/abstract=3827895 or http://dx.doi.org/10.2139/ssrn.3827895

Dina Ghanma (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Ioannis Oikonomou

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Lisa Schopohl

ICMA Centre, Henley Business School, University of Reading ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Simone Varotto

ICMA Centre - Henley Business School, University of Reading ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
52
Abstract Views
238
rank
466,448
PlumX Metrics