Researchers have reported a positive, negative, and neutral impact of corporate social responsibility (CSR) on financial performance. This inconsistency may be due to flawed empirical analysis. In this paper, we demonstrate a particular flaw in existing econometric studies of the relationship between social and financial performance. These studies estimate the effect of CSR by regressing firm performance on corporate social performance, and several control variables. This model is misspecified because it does not control for investment in R&D, which has been shown to be an important determinant of firm performance. This misspecification results in upwardly biased estimates of the financial impact of CSR. When the model is properly specified, we find that CSR has a neutral impact on financial performance. Copyright © 2000 John Wiley & Sons, Ltd.

Corporate social responsibility and financial performance: correlation or misspecification?

As in previous decades, merger activity clusters by industry during the 1990s. One particular kind of industry shock, deregulation, becomes a dominant factor, accountings for nearly half of the merger activity since the late 1980s. In contrast to the 1980s, mergers in the 1990s are mostly stock swaps, and hostile takeovers virtually disappear. Over our 1973 to 1998 sample period, the announcement-period stock market response to mergers is positive for the combined merging parties, suggesting that mergers create value on behalf of shareholders. Consistent with that, we find evidence of improved operating performance following mergers, relative to industry peers.

/pdf/new-evidence-and-perspectives-on-mergers-26rm4e7h40.pdf

New Evidence and Perspectives on Mergers

http://raw.rutgers.edu/docs/intangibles/Papers/the%20capitalizationamortization.pdf

The capitalization, amortization, and value-relevance of R&D

This paper examines whether institutional investors create or reduce incentives for corporate managers to reduce investment in research and development (RD otherwise, institutional ownership serves to reduce pressures on managers for myopic investment behavior.

The Influence of Institutional Investors on Myopic R&D Investment Behavior

We examine whether stock prices fully reflect the value of firms? intangible assets, focusing on research and development (R&D). Since intangible assets are not reported on financial statements under current U.S. accounting standards and R&D spending is expensed, the valuation problem may be especially challenging. Nonetheless we find that historically the stock returns of firms doing R&D on average matches the returns on firms with no R&D. For companies engaged in R&D, high R&D intensity has a distinctive effect on returns for two groups of stocks. Within the set of growth stocks, R&D-intensive stocks tend to out-perform stocks with little or no R&D. Companies with high R&D relative to equity market value (who tend to have poor past returns) show strong signs of mis-pricing. In both cases the market apparently fails to give sufficient credit for firms? R&D investments. Our exploratory investigation of the effects of advertising on returns yields similar results. We also provide evidence that R&D intensity is positively associated with return volatility, everything else equal. Insofar as the association reflects investors? lack of information about firms? R&D activity, increased accounting disclosure may be beneficial.

/pdf/the-stock-market-valuation-of-research-and-development-1oxs7yezjv.pdf

The Stock Market Valuation of Research and Development Expenditures

Corporate research and development expenditures and share value

Project finance: raising money the old‐fashioned way

We analyze the new market-index certificates of deposit (MICDs), which pay variable interest pegged to the performance of the Standard and Poor's (S&P) 500 stock market index. The pricing formulas as well as the equilibrium relationship between the participation percentages for both the call-and put-type MICDs are derived and discussed. From the implicit value of the option component we compute implied standard deviations (ISDs) for the market index, and find inconsistencies in the pricing policies of the recent issuers of MICDs. The terms under which “bear” versions are being offered are particularly unattractive, and offering better terms would create new opportunities for the issuers of MICDs. We also analyze the issuer's risk exposure, and discuss the natural as well as the dynamic hedging strategies.

An analysis of market-index certificates of deposit

Models for valuing an option to exchange one commodity for another, or any combination of n commodities for some combination of m others, are applied to the capital budgeting problem. By analyzing a project in the exchange option pricing framework, it is possible to draw wellfounded conclusions about the effects on project value of such attributes as flexibility and innovativeness. A project which uses systems that have many alternative uses is recognized by such analysis to be more valuable than an otherwise identical project which uses very specialized systems, because the former provides a greater array of choices. Likewise, a company which thinks of a new use for some kind of system will be able to generate a project which has a higher value than any other company could generate from the same system. By including divestiture as one of the alternatives in the portfolio of options representing a project, it is possible to incorporate project abandonment into the analysis, which is an improvement over earlier methodologies which simply add the value of the “abandonment option” to the discounted cash flow net present value. Finally, shortcomings of the options approach to capital budgeting are discussed.

John W. Kensinger

Papers

Corporate research and development expenditures and share value

Project finance: raising money the old‐fashioned way

An analysis of market-index certificates of deposit

The capital investment project as a set of exchange options

Puttable Stock: A New Innovation in Equity Financing