During the 2008-2009 financial crisis, firms with high social capital, measured as corporate social responsibility (CSR) intensity, had stock returns that were four to seven percentage points higher than firms with low social capital. High-CSR firms also experienced higher profitability, growth, and sales per employee relative to low-CSR firms, and they raised more debt. This evidence suggests that the trust between the firm and both its stakeholders and investors, built through investments in social capital, pays off when the overall level of trust in corporations and markets suffers a negative shock.

https://onlinelibrary.wiley.com/doi/pdf/10.1111/jofi.12505

Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis

We provide a new explanation to the limited stock market participation puzzle. In deciding whether to buy stocks, investors factor in the risk of being cheated. The perception of this risk is a function not only of the objective characteristics of the stock, but also of the subjective characteristics of the investor. Less trusting individuals are less likely to buy stock and, conditional on buying stock, they will buy less. The calibration of the model shows that this problem is sufficiently severe to account for the lack of participation of some of the richest investors in the United States as well as for differences in the rate of participation across countries. We also find evidence consistent with these propositions in Dutch and Italian micro data, as well as in cross country data.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID811545_code468680.pdf?abstractid=811545&rulid=9494241&mirid=3

Trusting the Stock Market

THIS paper is concerned with those actions of business firms which have harmful effects on others. The standard example is that of a factory the smoke from which has harmful effects on those occupying neighbouring properties. The economic analysis of such a situation has usually proceeded in terms of a divergence between the private and social product of the far' ory, in which economists have largely followed the treatment of Pigou in The Economics of Welfare. The conclusions to which this kind of analyris seems to have led most economists is that it would be desirable to make the owner of the factory liable for the damage caused to those injured by the smoke, or alternatively, to place a tax on the factory owner varying with the amount of smoke produced and equivalent in money terms to the damage it would cause, or finally, to exclude the factory from residential districts (and presumably from other

闡釋《社會成本問題》[The Problem of Social Cost]

http://www.nccr-finrisk.uzh.ch/media/pdf/M-Ferreira_27-11.pdf

Does governance travel around the world? Evidence from institutional investors.

Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth

This paper presents an industry equilibrium model where firms have a choice to engage in corporate social responsibility (CSR) activities. We model CSR as an investment to increase product differen...

http://www.labex-refi.com/wp-content/uploads/2015/05/Corporate-Social-Responsibility-and-Firm-Risk_Theory-and-Empirical-Evidence.pdf

Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence

This paper presents an industry equilibrium model where firms have a choice to engage in corporate social responsibility (CSR) activities. We model CSR activities as a product differentiation strategy allowing firms to benefit from higher profit margins. The model predicts that CSR decreases systematic risk and increases firm value and that these effects are stronger for firms operating in differentiated goods industries and when consumers' expenditure share on CSR goods is small. We find supporting evidence for our predictions. We address a potential endogeneity problem by instrumenting CSR using data on the political affiliation of the firm's home state.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2984214_code1664187.pdf?abstractid=1961971&mirid=1&type=2

The COVID-19 pandemic and the subsequent lockdown brought about an exogenous and unparalleled stock market crash The crisis thus provides a unique opportunity to test theories of environmental and social (ES) policies This paper shows that stocks with higher ES ratings have significantly higher returns, lower return volatility, and higher operating profit margins during the first quarter of 2020 ES firms with higher advertising expenditures experience higher stock returns, and stocks held by more ES-oriented investors experience less return volatility during the crash This paper highlights the importance of customer and investor loyalty to the resiliency of ES stocks

/pdf/resiliency-of-environmental-and-social-stocks-an-analysis-of-4fhagvq3z4.pdf

Resiliency of Environmental and Social Stocks: An Analysis of the Exogenous COVID-19 Market Crash

We study the effects of investor protection on equilibrium stock prices, returns and portfolio allocation decisions. In our theoretical model, if investor protection is weak, wealthy investors have an incentive to become controlling shareholders. In equilibrium, the stock price reflects the demand from both controlling shareholders and portfolio investors. As a consequence, due to the high demand from controlling shareholders, the price of weak corporate governance stocks is not low enough to fully discount the extraction of private benefits. This generates the following empirical implications. First, stocks should have lower expected returns when investor protection is weak. Second, domestic and foreign investors' participation in the stock market should be lower in countries with weak investor protection. Third, portfolio investors from countries with weak investor protection should hold relatively more foreign equity. Fourth, countries with weak investor protection should receive relatively more foreign direct investment. We show that these implications are consistent with existing empirical studies and we provide original evidence that domestic portfolio investors are less likely to participate in the domestic stock market and hold more foreign equity, when investor protection is weak.

/pdf/investor-protection-equity-returns-and-financial-4o0w0w5rlp.pdf

Investor Protection, Equity Returns and Financial Globalization

We study the effects of investor protection on stock returns and portfolio allocation decisions In our theoretical model, if investor protection is weak, wealthy investors have an incentive to become controlling shareholders In equilibrium, the stock price reflects the demand from both controlling shareholders and portfolio investors Due to the high demand from controlling shareholders, the price of weak corporate governance stocks is not low enough to fully discount the extraction of private benefits Thus, stocks have lower expected returns when investor protection is weak This has implications for domestic and foreign investors’ stockholdings In particular, we show that portfolio investors’ participation in the domestic stock market and home equity bias are positively related to investor protection and provide original evidence in their support

/pdf/investor-protection-equity-returns-and-financial-3i1iwp6znk.pdf

Yrjö Koskinen

Papers

Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence

Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence

Resiliency of Environmental and Social Stocks: An Analysis of the Exogenous COVID-19 Market Crash

Investor Protection, Equity Returns and Financial Globalization

Investor Protection, Equity Returns, and Financial Globalization