Overview of studies on CSR and firm value
| Measure of CSR | ||||||
|---|---|---|---|---|---|---|
| Study | Sample period | Dependent variable | Overall | Social | Environmental | Overview |
| Albuquerque et al. (2014) | 2003-2011 | Firm value, firm risk, Tobin’s q | + | CSR is considered as an investment in customer loyalty. Empirically, CSR reduces systematic risk on average and more strongly for firms producing differentiated goods and when consumers’ expenditure share on CSR goods is small | ||
| Bouslah et al. (2013) | 1991-2007 | Firm risk | + | + | + | Firm risk for S&P500 index constituents is positively affected by employee, diversity, and governance concerns. Community (Diversity) strengths negatively (positively) affect firm risk. As to non-S&P500 members, firm risk is positively affected by employee concerns and diversity strengths. However, firm risk of non-S&P500 members is negatively affected by Environment strengths |
| Chava (2014) | 1992-2007 | Implied cost of equity | + | Investors demand significantly higher expected returns on stocks with environmental concerns compared to firms without such concerns. Lenders charge a significantly higher interest rate on bank loans issued to firms with these environmental concerns | ||
| Dhaliwal et al. (2014) | 1992-2007 | Implied cost of equity | +a | Negative association between CSR disclosure and the cost of equity capital; this relationship is more pronounced in stakeholder-oriented countries. There is also evidence that financial and CSR disclosures act as substitutes for each other in reducing the cost of equity capital | ||
| Dimson et al. (2015) | 1999-2009 | Firm value, Tobin’s q | + | + | + | Successful CSR engagements with US public companies experience positive abnormal returns. Firms with reputational concerns and higher capacity to implement changes are more likely to experience positive abnormal returns |
| El Ghoul et al. (2011) | 1992-2007 | Implied cost of equity | + | + | + | Firms with better CSR rankings enjoy cheaper equity financing. Investment in improving CSR rating contributes substantially to reducing cost of equity. Participation in two “sin” industries, tobacco and nuclear power, increases firms’ cost of equity |
| Flammer (2015) | 1997-2012 | Firm value | +a | One of the few papers using a quasi-natural experiment design (regression discontinuity design). The passage of “close-call” CSR-related shareholder proposals is similar to a random assignment of CSR to companies and leads to positive announcement returns and better accounting performance. The channels are higher labor productivity and sales growth | ||
| Liang and Renneboog (2018) | 2002-2013 | Tobin’s q | +a | +a | +a | CSR performance is higher when dividends are high, leverage is high, cash flows and cash holdings are low, and when there is a high managerial pay-for-performance sensitivity. There is a positive relation between CSR investments and Tobin’s q (with instrumental variables) suggesting a causal link between good governance and high CSR and Tobin’s q |
| During the 2008-2009 financial crisis, firms with high 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. The evidence suggests that the trust between a firm and both its stakeholders and investors pays off when the overall level of trust in corporations and markets suffers a negative shock | ||||||
| Servaes and Tamayo (2013) | 1991-2005 | Firm value, Tobin’s q | + | CSR has a small, negative impact on market value for firms with low advertising intensity, and a positive impact for firms with high advertising intensity. There is no effect with a firm fixed effects specification | ||
| Sharfman and Fernando (2008) | 2002-2002 | Cost of capital | +a | Firms benefit from better environmental risk management through a reduction in their cost of equity capital, a shift from equity to debt financing, and higher tax benefits which come with the ability to add more debt | ||
| Measure of CSR | ||||||
|---|---|---|---|---|---|---|
| Study | Sample period | Dependent variable | Overall | Social | Environmental | Overview |
| 2003-2011 | Firm value, firm risk, Tobin’s | + | CSR is considered as an investment in customer loyalty. Empirically, CSR reduces systematic risk on average and more strongly for firms producing differentiated goods and when consumers’ expenditure share on CSR goods is small | |||
| 1991-2007 | Firm risk | + | + | + | Firm risk for S&P500 index constituents is positively affected by employee, diversity, and governance concerns. Community (Diversity) strengths negatively (positively) affect firm risk. As to non-S&P500 members, firm risk is positively affected by employee concerns and diversity strengths. However, firm risk of non-S&P500 members is negatively affected by Environment strengths | |
| 1992-2007 | Implied cost of equity | + | Investors demand significantly higher expected returns on stocks with environmental concerns compared to firms without such concerns. Lenders charge a significantly higher interest rate on bank loans issued to firms with these environmental concerns | |||
| 1992-2007 | Implied cost of equity | +a | Negative association between CSR disclosure and the cost of equity capital; this relationship is more pronounced in stakeholder-oriented countries. There is also evidence that financial and CSR disclosures act as substitutes for each other in reducing the cost of equity capital | |||
| 1999-2009 | Firm value, Tobin’s | + | + | + | Successful CSR engagements with US public companies experience positive abnormal returns. Firms with reputational concerns and higher capacity to implement changes are more likely to experience positive abnormal returns | |
| El Ghoul | 1992-2007 | Implied cost of equity | + | + | + | Firms with better CSR rankings enjoy cheaper equity financing. Investment in improving CSR rating contributes substantially to reducing cost of equity. Participation in two “sin” industries, tobacco and nuclear power, increases firms’ cost of equity |
| 1997-2012 | Firm value | +a | One of the few papers using a quasi-natural experiment design (regression discontinuity design). The passage of “close-call” CSR-related shareholder proposals is similar to a random assignment of CSR to companies and leads to positive announcement returns and better accounting performance. The channels are higher labor productivity and sales growth | |||
| 2002-2013 | Tobin’s | +a | +a | +a | CSR performance is higher when dividends are high, leverage is high, cash flows and cash holdings are low, and when there is a high managerial pay-for-performance sensitivity. There is a positive relation between CSR investments and Tobin’s | |
| During the 2008-2009 financial crisis, firms with high 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. The evidence suggests that the trust between a firm and both its stakeholders and investors pays off when the overall level of trust in corporations and markets suffers a negative shock | ||||||
| 1991-2005 | Firm value, Tobin’s | + | CSR has a small, negative impact on market value for firms with low advertising intensity, and a positive impact for firms with high advertising intensity. There is no effect with a firm fixed effects specification | |||
| 2002-2002 | Cost of capital | +a | Firms benefit from better environmental risk management through a reduction in their cost of equity capital, a shift from equity to debt financing, and higher tax benefits which come with the ability to add more debt | |||
Notes: This table presents an overview of selected papers on the relationship between CSR and firm value, including the authors, the sample period, the independent variable, and the CSR data used. The two most widely recognized ESG data sets are KLD and Asset4. All studies use KLD data, except aIndicates the use of other sources of CSR data
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