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Corporate Social Responsibility and Shareholder's Value: An Event Study Analysis

FRB of Atlanta Working Paper No. 2007-6

Bank of Finland Research Discussion Paper No. 1/2009

53 Pages Posted: 6 Sep 2006  

Leonardo Becchetti

University of Rome, Tor Vergata - Faculty of Economics

Rocco Ciciretti

University of Rome II - Department of Economics and Finance

Iftekhar Hasan

Gabelli School of Business, Fordham University; Bank of Finland

Date Written: January 22, 2009

Abstract

In today's global economy, corporate social responsibility (CSR) is a core component of corporate strategy. Due in part to financial scandals, losses, and the diminished reputation of the affected listed companies, CRS is emerging as a crucial instrument for minimizing conflicts with stakeholders. While corporations are busy adopting and enhancing CSR practices, there is (beyond a very few notable exceptions) no established empirical research on its impact and relevance for the capital market. Our paper investigates this issue by tracing market reactions to corporate entry into and exit from the Domini 400 Social Index (a recognized CSR benchmark) between 1990 and 2004. Our paper highlights two main findings: i) a significant upward trend in absolute values of abnormal returns, irrespective of the event (entry/exit vis-a-vis the index) type; and ii) a significant negative effect on abnormal returns after announcement from the Domini index. The latter effect continues to persist even after controlling for concurring financial distress shocks and stock market seasonality.

Keywords: corporate social responsibility, event study

JEL Classification: G14, D21, L21

Suggested Citation

Becchetti, Leonardo and Ciciretti, Rocco and Hasan, Iftekhar, Corporate Social Responsibility and Shareholder's Value: An Event Study Analysis (January 22, 2009). ; Bank of Finland Research Discussion Paper No. 1/2009. Available at SSRN: https://ssrn.com/abstract=928557 or http://dx.doi.org/10.2139/ssrn.928557

Leonardo Becchetti

University of Rome, Tor Vergata - Faculty of Economics ( email )

Via Columbia, 2
I-00133 Rome
Italy

Rocco Ciciretti (Contact Author)

University of Rome II - Department of Economics and Finance ( email )

Via Columbia, 2
Roma, 00133
Italy
+39 06 72595925 (Phone)

HOME PAGE: http://directory.uniroma2.it/index.php/schede/getPubblicazioni/948

Iftekhar Hasan

Gabelli School of Business, Fordham University ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

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