New research offers proof that investment in, and subsequent reporting of, corporate social responsibility (CSR) improves a firm’s stock price.
Professor CB Bhattacharya, E.ON Chair in Corporate Responsibility and Dean of International Relations at ESMT European School of Management and Technology, examined stock market reactions to CSR communications, specifically the release of CSR reports, and found compelling new evidence linking CSR to stock prices.
The research was based on a sample of Fortune 500 firms who released CSR reports between 2005 and 2011. It found that annual stock prices react positively to changes in CSR performance when a firm has released a CSR report in that year. This confirms that CSR reports convey new information that’s seen as relevant and as having value by the market, says ESMT.
It also revealed that significant cumulative absolute abnormal returns and significant cumulative abnormal trading volumes occur around the release dates of CSR reports – suggesting investors do revise their expectations of future cash flows and/or risks of a firm in reaction to the release of its annual CSR reports and make trading decisions accordingly.
ESMT says that this is the first piece of research to examine whether and how the stock market reacts to the release of standalone CSR reports.
The research involved an event study that captured immediate short-term reactions of the stock market to the release of CSR reports. Following prior literature on event studies, Bhattacharya used both price-based and volume-based proxies to measure market reaction to CSR reports.
Bhattacharya says: “This research provides useful new information on an under-examined, yet critical stakeholder – investors. It shows that stock markets positively value the timely release of CSR reports helping to significantly strengthen the business case for CSR and lay to rest the argument that investors attach little value to CSR performance.
“It builds a strong business case for publishing standalone CSR reports, particularly for socially responsible firms. It also finds that there is an even greater benefit for firms, who operate in a weaker information environment, to publish an annual CSR report.”
The research was carried out in collaboration with Kun Yu from the College of Management at the University of Massachusetts and Shuili Du from the Peter T. Paul College of Business and Economics at the University of New Hampshire.
Read the full report here.
This article was taken from here.