The Value of Corporate Social Responsibility: Evidence from an Inflation-Driven Crisis of Trust

49 Pages Posted: 28 Dec 2022 Last revised: 14 Mar 2024

See all articles by Ana Mão-de-Ferro

Ana Mão-de-Ferro

University of Zurich - Department Finance; Swiss Finance Institute

Stefano Ramelli

University of St. Gallen - School of Finance; Swiss Finance Institute

Date Written: December 20, 2022

Abstract

Stakeholder trust is a major driver of corporate performance, but its benefits are difficult to identify empirically. This paper provides new evidence on the role of social capital on firm value employing a sudden increase in inflation as exogenous variation in stakeholder trust. Analyzing the cross section of U.S. stock returns from 2018 through 2022, we find that in months following higher inflation rates, equity investors reward firms with stronger social capital, as proxied by their corporate social responsibility (CSR) levels. The result holds using different measures of inflation and CSR. The effect is stronger for firms headquartered in Democratic U.S. states (those most exposed to the “corporate greed” narrative of inflation) and ex-ante higher trust regions, as well as for firms with higher levels of customer awareness, customer sensitivity, and intangible capital. Analyst forecast revisions provide additional evidence that cash flow considerations drive the observed inflation-hedging property of CSR. Overall, the findings spotlight inflation as a crisis in stakeholder trust and provide new insights into the importance of social capital for firm value.

Keywords: CSR, ESG, Inflation, Stock returns, Social capital, Trust

JEL Classification: G12, G32, M14

Suggested Citation

Mão-de-Ferro, Ana and Ramelli, Stefano, The Value of Corporate Social Responsibility: Evidence from an Inflation-Driven Crisis of Trust (December 20, 2022). Swiss Finance Institute Research Paper No. 23-06, Available at SSRN: https://ssrn.com/abstract=4308164 or http://dx.doi.org/10.2139/ssrn.4308164

Ana Mão-de-Ferro (Contact Author)

University of Zurich - Department Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
42, Bd du Pont d'Arve
Geneva, CH-1211
Switzerland

Stefano Ramelli

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St. Gallen, 9000
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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