The Impact of Corporate Social Performance on Financial Risk and Utility: A Longitudinal Analysis

Abstract

This study focuses on the wealth‐protective effects of socially responsible firm behavior by examining the association between corporate social performance (CSP) and financial risk for an extensive panel data sample of S&P 500 companies between the years 1992 and 2009. In addition, the link between CSP and investor utility is investigated. The main findings are that corporate social responsibility is negatively but weakly related to systematic firm risk and that corporate social irresponsibility is positively and strongly related to financial risk. The fact that both conventional and downside risk measures lead to the same conclusions adds convergent validity to the analysis. However, the risk‐return trade‐off appears to be such that no clear utility gain or loss can be realized by investing in firms characterized by different levels of social and environmental performance. Overall volatility conditions of the financial markets are shown to play a moderating role in the nature and strength of the CSP‐risk relationship.

The Economic Impact of Environmentally Responsible Practices

“…Thus, the negative impact of environmentally irresponsible actions on FP appears to persist over time. This is consistent with the finding that the β 21 and β 22 coefficients of the current concern score and corroborate the results obtained by Oikonomou et al (2012). Secondly, examination of the long-term impact of EP on FP by adding a EP variable lagged by two periods shows a systematic relationship.…”

Sustainable development and corporate governance in the financial system: Are environmentally friendly banks less risky?

“…Therefore, it is not surprising that a growing number of studies have empirically addressed how a bank's CSR activism influences its outcomes, primarily in terms of profitability, growth opportunity, reporting quality, and customer satisfaction (e.g., Cornett, Erhemjamts, & Tehranian, 2016;Forcadell & Aracil, 2017;García-Sánchez & García-Meca, 2017;Shen, Wu, Chen, & Fang, 2016;Soana, 2011;Wu, Shen, & Chen, 2017). We attempt to contribute to this debate motivated by the idea that each individual CSR dimension has its own identity (Cai, Cui, & Jo, 2016;Oikonomou, Brooks, & Pavelin, 2012). We attempt to contribute to this debate motivated by the idea that each individual CSR dimension has its own identity (Cai, Cui, & Jo, 2016;Oikonomou, Brooks, & Pavelin, 2012).…”

Do corporate social responsibility ratings affect credit default swap spreads?

“…CSR efforts may reduce the uncertainty of future cash flows (Shane & Spicer, 1983), because firms that are more engaged in CSR may be less subject to costly lawsuits due to misconduct or to significant compliance costs associated with environmental, social, and governance (ESG) issues (Oikonomou et al, 2012).…”

“…Because CSR engagement is costly, several commentators have questioned the existence of tangible benefits for firms, both in terms of a better performance and of a decrease in financial risk (Oikonomou, Brooks, & Pavelin, 2012). Because CSR engagement is costly, several commentators have questioned the existence of tangible benefits for firms, both in terms of a better performance and of a decrease in financial risk (Oikonomou, Brooks, & Pavelin, 2012).…”

“…In fact, most contributions investigate U.S. companies (Bae, Chang, & Yi, 2018;Goss & Roberts, 2011;Oikonomou et al, 2012Oikonomou et al, , 2014. In fact, most contributions investigate U.S. companies (Bae, Chang, & Yi, 2018;Goss & Roberts, 2011;Oikonomou et al, 2012Oikonomou et al, , 2014.…”