Which Aspects of CSR Predict Firm Market Value?

Abstract

Note: This paper is a pre-publication version of "Bajic, S. and Yurtoglu, B. (2018), "Which aspects of CSR predict firm market value?", Journal of Capital Markets Studies, Vol. 2 No. 1, pp. 50-69. https://doi.org/10.1108/JCMS-10-2017-0002"

There is evidence that corporate social responsibility (CSR) practices predict higher firm value, but little evidence on which specific aspects of CSR drive this relationship. We study this question in a sample drawn from 35 countries over 2003-2016 and find an economically significant relationship between our overall CSR measure and firm value. The overall CSR score builds on data from Asset 4 and is comprised of three indices for environmental, social, and corporate governance aspects of CSR. We find that the social index consistently predicts higher market value. We also show that the use of particular elements of CSR can lead to substantial omitted variables bias (OVB) when predicting firm value. Hence, the results of empirical studies that focus on a single index, which captures a specific aspect of CSR and omits the remaining aspects, should be interpreted with caution.

Keywords: Corporate social responsibility, Environmental performance, social performance, corporate governance, firm value, ESG, firm performance, international comparison

JEL Classification: C10, G11, G15