The impact of corporate social responsibility on stock price volatility of the US banks: a moderating role of tax

Abstract

Purpose Corporate social responsibility (CSR) is considered one of the crucial branding and promotional tools for banks to legitimise their role in society to become socially and environmentally responsible corporate citizen. The purpose of this study is to investigate the effect of CSR on stock price volatility of the US banks. This study further examined the moderating role of tax on the relationship between CSR and stock price volatility. Design/methodology/approach This study uses the random-effects panel regression estimation technique to test the hypotheses. The authors include a sample of 37 US banks from 2013 to 2017 with 144 bank-years observation. The authors consider the environmental, social and governance (ESG) scores from Refinitiv as a proxy for CSR. The financial data are also collected from the Refinitiv Datastream database. Findings This study finds a significant and positive relationship between CSR and stock price volatility, which indicates that shareholders of the US banks may not prefer excess concentration on CSR because of the additional cost of investment associated with implementing CSR. Also, tax payments and stock price volatility show a significant positive association, which implies that there is a higher possibility of an increase in stock price volatility if the tax rate increases. Generally, shareholders are not interested in paying more taxes, so they may swap the market instead of paying more tax. On the other hand, the authors find a non-significant moderating effect of tax payment on CSR-volatility nexus. Originality/value Previous studies mainly focussed on CSR and financial performance of banks. Conversely, studies focussing on CSR and stock volatility are limited. This study will fill the gap in the literature by considering the effect of CSR on the stock price volatility of the US banks.

Effect of Dividend Policy Decision on Share Price Volatility (SPV) of Modaraba Companies Listed in Pakistan Stock Exchange (PSX)

“…This suggests that firms with higher dividend payments have stable stock prices in market. The companies with lower dividend face higher uncertainty in stock prices and have more volatile stocks (Tasnia, AlHabshi, & Rosman, 2020). The results are in line with the research undertaken by Baskin, (1989) on USA.…”

“…The research area is still contentious, with opposing views relating to share prices' responsiveness towards dividend payments. Gordon (1963) led the group to believe in stock prices' responsiveness towards dividend policy decisions (Tasnia, AlHabshi, & Rosman, 2020). The other view of irrelevance was led by Miller & Modigliani (1961) does not believe in any bearing of DP on SPV.…”

The Impact of Environmental Sustainability Disclosure on Stock Return of Saudi Listed Firms: The Moderating Role of Financial Constraints

“…The result of Halbritter and Dorfleitner (2015) indicate that there are no significant return differences for great or low ESG scores of firms. Tasnia et al (2020) indicate that CSR is positively and significantly related to the volatility of stock price. They argue that investors do not have a preference for more focus on CSR owing to the added cost associated with this more focus.…”

“…The financial consequences of environmental sustainability disclosure on stock return behavior have not been sufficiently addressed in previous literature. Moreover, the results of a number of earlier studies (e.g., Brammer et al 2006;Halbritter and Dorfleitner 2015;Tasnia et al 2020;Indriastuti and Najihah 2020) are inconclusive and equivocal as well as did not provide clear conclusion whether the stock return is valued or devalued by environmental disclosure. Thus, our study fills these gaps in previous literature by providing new evidence concerning whether environmental sustainability disclosure is valued or overlooked in financial markets.…”

Corporate social responsibility and earnings management in the EU: a panel data analysis approach

“…This is a database that creates indexes about environmental, governance and social responsibility activities of firms and rates them in an annual basis. That database is been considered as one of the most reliable and trustworthy databases on CSR, as it has been used by several studies on the field (Ioannou and Serafeim, 2012;Chollet and Sandwidi, 2018;Tasnia et al, 2020;Chen and Yang, 2020). From a total of 656,734 firm-year observations, we excluded those firms without social score data for at least five consecutive years to avoid bias in the empirical results and also to facilitate the estimation of differenced variables.…”