Corporate Social Responsibility and Shareholder Reaction: The Environmental Awareness of Investors
TL;DR: In this paper, the authors examine whether shareholders are sensitive to corporations' environmental footprint and find that companies reported to behave responsibly toward the environment experience a significant stock price increase, whereas firms that behave irresponsibly face a significant decrease.
Abstract: This study examines whether shareholders are sensitive to corporations' environmental footprint. Specifically, I conduct an event study around the announcement of corporate news related to environment for all US publicly traded companies from 1980 to 2009. In keeping with the view that environmental corporate social responsibility (CSR) generates new and competitive resources for firms, I find that companies reported to behave responsibly toward the environment experience a significant stock price increase, whereas firms that behave irresponsibly face a significant decrease. Extending this view of “environment-as-a-resource,” I posit that the value of environmental CSR depends on external and internal moderators. First, I argue that external pressure to behave responsibly towards the environment―which has increased dramatically over recent decades―exacerbates the punishment for eco-harmful behavior and reduces the reward for eco-friendly initiatives. This argument is supported by the data: over time, the ...
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01 Jan 1994TL;DR: In this paper, a natural resource-based view of the firm is proposed, which is composed of three interconnected strategies: pollution prevention, product stewardship, and sustainable development, and each of these strategies are advanced for each of them regarding key resource requirements and their contributions to sustained competitive advantage.
Abstract: Historically, management theory has ignored the constraints imposed by the biophysical (natural) environment. Building upon resource-based theory, this article attempts to fill this void by proposing a natural-resource-based view of the firm—a theory of competitive advantage based upon the firm's relationship to the natural environment. It is composed of three interconnected strategies: pollution prevention, product stewardship, and sustainable development. Propositions are advanced for each of these strategies regarding key resource requirements and their contributions to sustained competitive advantage.
902 citations
TL;DR: The adoption of close call CSR proposals leads to positive announcement returns and superior accounting performance, implying that these proposals are value enhancing, and the channels through which companies benefit from CSR are found to increase.
Abstract: This study examines the effect of corporate social responsibility (CSR) on financial performance. Specifically, I analyze the effect of CSR-related shareholder proposals that pass or fail by a small margin of votes. The passage of such "close-call" proposals is akin to a random assignment of CSR to companies and hence provides a clean causal estimate. Consistent with the view that CSR is a valuable resource, I find that the adoption of CSR proposals leads to positive announcement returns and superior accounting performance. When I examine the channels through which companies benefit from CSR, I find that the adoption of CSR proposals is associated with an increase in labor productivity and sales growth. This evidence suggests that CSR improves employee satisfaction and helps companies cater to customers that are responsive to sustainable practices.
837 citations
Cites background or result from "Corporate Social Responsibility and..."
...______________________ * Correspondence to: Caroline Flammer, Richard Ivey School of Business, University of Western Ontario, 1255 Western Road, Office 3351, London, ON N6G 0N1, Canada....
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...______________________ * Correspondence to: Caroline Flammer, Richard Ivey School of Business, University of Western Ontario, 1255 Western Road, Office 3351, London, ON N6G 0N1, Canada. E-mail: cflammer@ivey.uwo.ca. Tel: +1 (519) 6613144. I thank Wei Jiang (the editor), two anonymous reviewers, the anonymous associate editor, Alex Edmans, Maria Guadalupe, Andrew Hoffman, Aleksandra Kacperczyk, James Naughton, Felix Oberholzer-Gee, Brian Richter, as well as seminar participants at the Alliance for Research on Corporate Sustainability Conference at UC Berkeley (2013) for helpful comments and suggestions....
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...However, once the lowhanging fruits of CSR have been harvested, it may become increasingly difficult to adopt social policies that further improve the company’s financial performance (for a related argument in the context of green initiatives, see Flammer 2013)....
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...Similarly, Flammer (2013) finds abnormal returns of 0.84% around the announcement of green initiatives....
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...This evolution is consistent with previous evidence documenting an increase in shareholders’ awareness for CSR-related issues over time (see, e.g., Flammer 2013)....
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TL;DR: Jiang et al. as discussed by the authors examined the effect of shareholder proposals related to corporate social responsibility CSR on financial performance and found that the adoption of close call CSR proposals leads to positive announcement returns and superior accounting performance, implying that these proposals are value enhancing.
Abstract: This study examines the effect of shareholder proposals related to corporate social responsibility CSR on financial performance. Specifically, I focus on CSR proposals that pass or fail by a small margin of votes. The passage of such "close call" proposals is akin to a random assignment of CSR to companies and hence provides a quasi-experiment to study the effect of CSR on performance. I find that the adoption of close call CSR proposals leads to positive announcement returns and superior accounting performance, implying that these proposals are value enhancing. When I examine the channels through which companies benefit from CSR, I find that labor productivity and sales growth increase after the vote. Finally, I document that close call CSR proposals differ from non-close proposals along several dimensions. Accordingly, although my results imply that adopting close call CSR proposals is beneficial to companies, they do not necessarily imply that CSR proposals are beneficial in general.
Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.2038 .
This paper was accepted by Wei Jiang, finance.
739 citations
TL;DR: The authors found that well-governed firms that suffer less from agency concerns (less cash abundance, positive pay-for-performance, small control wedge, strong minority protection) engage more in CSR.
714 citations
TL;DR: In this paper, the authors study how stock markets react to positive and negative events concerned with a firm's corporate social responsibility (CSR), and they show that investors respond strongly negatively to negative events and weakly negatively to positive events.
668 citations
References
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TL;DR: In this article, the authors identify five common risk factors in the returns on stocks and bonds, including three stock-market factors: an overall market factor and factors related to firm size and book-to-market equity.
24,874 citations
"Corporate Social Responsibility and..." refers result in this paper
...However, I show in rows 4 and 5 of Table 3 that I obtain very similar results if, instead of the market model, I use the three-factor model of Fama and French (1993) or the four-factor model of Carhart (1997).8 Industry-adjusted CARs....
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01 Mar 2010
18,472 citations
Book•
01 Jan 1984TL;DR: The Stakeholder Approach: 1. Managing in turbulent times 2. The stakeholder concept and strategic management 3. Strategic Management Processes: 4. Setting strategic direction 5. Formulating strategies for stakeholders 6. Implementing and monitoring stakeholder strategies 7. Conflict at the board level 8. The functional disciplines of management 9. The role of the executive as mentioned in this paper.
Abstract: Part I. The Stakeholder Approach: 1. Managing in turbulent times 2. The stakeholder concept and strategic management 3. Stakeholder management: framework and philosophy Part II. Strategic Management Processes: 4. Setting strategic direction 5. Formulating strategies for stakeholders 6. Implementing and monitoring stakeholder strategies Part III. Implications for Theory and Practice: 7. Conflict at the board level 8. The functional disciplines of management 9. The role of the executive.
17,404 citations
TL;DR: Using a sample free of survivor bias, this paper showed that common factors in stock returns and investment expenses almost completely explain persistence in equity mutual fund's mean and risk-adjusted returns.
Abstract: Using a sample free of survivor bias, I demonstrate that common factors in stock returns and investment expenses almost completely explain persistence in equity mutual funds' mean and risk-adjusted returns Hendricks, Patel and Zeckhauser's (1993) "hot hands" result is mostly driven by the one-year momentum effect of Jegadeesh and Titman (1993), but individual funds do not earn higher returns from following the momentum strategy in stocks The only significant persistence not explained is concentrated in strong underperformance by the worst-return mutual funds The results do not support the existence of skilled or informed mutual fund portfolio managers PERSISTENCE IN MUTUAL FUND performance does not reflect superior stock-picking skill Rather, common factors in stock returns and persistent differences in mutual fund expenses and transaction costs explain almost all of the predictability in mutual fund returns Only the strong, persistent underperformance by the worst-return mutual funds remains anomalous Mutual fund persistence is well documented in the finance literature, but not well explained Hendricks, Patel, and Zeckhauser (1993), Goetzmann and Ibbotson (1994), Brown and Goetzmann (1995), and Wermers (1996) find evidence of persistence in mutual fund performance over short-term horizons of one to three years, and attribute the persistence to "hot hands" or common investment strategies Grinblatt and Titman (1992), Elton, Gruber, Das, and Hlavka (1993), and Elton, Gruber, Das, and Blake (1996) document mutual fund return predictability over longer horizons of five to ten years, and attribute this to manager differential information or stock-picking talent Contrary evidence comes from Jensen (1969), who does not find that good subsequent performance follows good past performance Carhart (1992) shows that persistence in expense ratios drives much of the long-term persistence in mutual fund performance My analysis indicates that Jegadeesh and Titman's (1993) one-year momentum in stock returns accounts for Hendricks, Patel, and Zeckhauser's (1993) hot hands effect in mutual fund performance However, funds that earn higher
13,218 citations
"Corporate Social Responsibility and..." refers result in this paper
...However, I show in rows 4 and 5 of Table 3 that I obtain very similar results if, instead of the market model, I use the three-factor model of Fama and French (1993) or the four-factor model of Carhart (1997).8 Industry-adjusted CARs....
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01 Jan 2007
TL;DR: When I hear businessmen speak eloquently about the social responsibilities of business in a free-enterprise system, I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life as mentioned in this paper.
Abstract: When I hear businessmen speak eloquently about the “social responsibilities of business in a free-enterprise system”, I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned “merely” with profit but also with promoting desirable “social” ends; that business has a “social conscience” and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are — or would be if they or anyone else took them seriously -preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.
9,875 citations