[Research Seminar 2018.08.23]Is Corporate Social Responsibility Priced?Speaker : Hoje Jo(Professor of Finance)
We provide evidence that firms with higher CSR activities earn initially lower future returns in asset pricing context. The quintile (or decile) hedging strategy buying the lowest CSR portfolio and selling the highest CSR portfolio earns 3.36-3.96% (4.23-4.52%) annual return on average. The negative relation between CSR and future returns is consistent with the view that CSR activities are indicative of perceived social norm pressure. In addition, we find that while the impact of CSR on future returns is negative initially, both the impact of CSR and cumulative CSR on future returns become positive over the long term between two and two and half years after CSR engagement. Two-year cumulative CSR produces 3.84-19.2% annual returns over time. Combined results are supportive of the social norm pressure and conflict resolution explanation. However, our result is neither consistent with a view that CSR activities proxy for market risk nor with a view that no trading profits are possible on the basis of publicly available information on CSR.
Keywords Corporate social responsibility, asset-pricing portfolio approach, social norm pressure, market externality, long-term CSR investment