The effect of corporate social responsibility on stock performance: new evidence for the USA and Europe

Abstract

This paper provides new empirical evidence for the effect of corporate social responsibility on corporate financial performance. In contrast to former studies, we examine two different regions, namely the USA and Europe, and disentangle firm and sector specific impacts. Our econometric analysis shows that environmental and social activities of a firm compared with other firms within the industry are valued by financial markets in both regions. However, the respective positive effects on average monthly stock returns between 2003 and 2006 are more robust in the USA and, in addition, non-linear. Our analysis furthermore points to biased parameter estimates if incorrectly specified econometric models are applied: the seemingly significantly negative effect of environmental and social performance of the industry to which a firm belongs strongly declines and mostly becomes insignificant if the explanation of stock performance is based on the Fama-French three-factor or the Carhart four-factor models instead of the simple Capital Asset Pricing Model.

Is There a Gold Social Seal? The Financial Effects of Additions to and Deletions from Social Stock Indices

“…Yet the difference between the results of Lackmann et al (2012) and our study should not be surprising given that the stocks of the DJSJ STOXX are European (and listed in many different countries), and it has been documented that the US and Europe diverge in terms of the financial impact of CSR (Von Arx and Ziegler, 2013;Kolbel and Busch, 2013). Furthermore, the dataset of Lackmann et al starts in 2001Lackmann et al starts in , whereas ours begins in 1990, making the dynamics of the CSR-CFP link more complex in our case.…”

Does past performance affect mutual fund tracking error in Taiwan?

“…That is, besides the market portfolio return, they add two variables (SMB and HML) to respond to stock size and value, respectively, where SMB stands for 'Small (market capitalization) Minus Big' and HML for 'High (book-to-market ratio) Minus Low'. Numerous recent empirical studies supported the Fama-French three factor model; for instance, Campello et al (2008), Hyde and Sherif (2010), Tsuji (2012) and Von Arx and Ziegler (2014). Mathematically, the Fama-French three factor model is expressed as follows:…”

“…The Carhart (1997) four-factor model is an extension of the Fama-French threefactor model, where the four factors include the Fama-French three factor plus one momentum (MOM) factor. Numerous recent empirical studies supported the Carhart four-factor model; for instance, Cakici et al (2013), Gregory et al (2013) and Von Arx and Ziegler (2014). Mathematically, the Carhart four factor model is expressed as follows:…”

Does CSR Moderate the Relationship between Corporate Governance and Chinese Firm’s Financial Performance? Evidence from the Shanghai Stock Exchange (SSE) Firms

“…According to von Arx and Ziegler [77], and Kim, Amaeshi [78]], the stakeholders have little information on CSR as compared with stock price and firm performance information, but this is increasing. Moreover, according to Kim, Li [79], and Godfrey, Merrill [80], firms that engage in CSR not only increase the value to shareholders, but also reduce firm risks.…”