Although the concept of corporate social responsibility is fundamentally multidimensional, most studies use composite scores to assess corporate social performance. How relevant are such composite scores? How the CSR dimensions are weighted? Should the weighting scheme be the same across sectors? This article proposes an original weighting scheme of CSR strengths and concerns, at the sector level, which is proportional to media and nongovernmental organizations scrutiny. The authors show that previous CSP assessments underweight environmental and corporate governance concerns. Moreover, findings (...) suggest that firms that are exposed to the closest scrutiny are usually criticized on one single dimension: for instance, banks for bad corporate governance, and basic-resource firms for environmental damage. Composite scores based on equal weights hence misrepresent CSP and the difference in CSR between sectors. (shrink)

The contribution of this work is a classification of corporate social action underlying the Social Ratings Data compiled by Kinder Lydenburg Domini Analytics, Inc. We compare extant typologies of corporate social action to the results of our exploratory factor analysis. Our findings indicate four distinct latent constructs that bear resemblance to concepts discussed in prior literature. Akey finding of our research is that positive and negative social action are both empirically and conceptually distinct constructs and should not be combined in (...) future research. Additionally, we recommend that some prior research results be reconsidered to determine whether these newly derived measures might clarify some previous findings. (shrink)

The relationship between corporate social responsibility and corporate financial performance has long been a central and contentious debate in the literature. However, prior empirical studies provide indefinite conclusions. The purpose of this study is to review systematically and quantify the CSR–CFP link in a meta-analytic framework. Based on 119 effect sizes from 42 studies, this study estimates that the overall effect size of the CSR–CFP relationship is positive and significant, thus endorsing the argument that CSR does enhance financial performance. Furthermore, (...) this work sheds light on the causal relationship between CSR and CFP. Subsequent financial performance is associated with prior social responsibility, while the reverse direction is not supported. This finding supports the instrumental stakeholder theory. As predicted, the meta-analysis results indicate that the measurement strategies of the two key constructs of CSR and CFP explain some variations of the CSR–CFP relationship. Last, this study examines the moderating effect of the environmental context on the CSR–CFP link. This work proposes that CSR in the developed world, with a relatively mature institutional system and efficient market mechanism, will be more visible than CSR in the developing world. The results show that the CSR–CFP relationship is stronger for firms from advanced economies than for firms from developing economies. (shrink)

This study examines whether the financial markets penalize public corporations for unethical business practices. Using event study methodology, it is found that upon the announcement that a firm is under investigation or has in some way engaged in unethical behavior, a statistically significant negative abnormal (excess) return is found. This suggests that firms are indeed penalized for their unethical actions.

We examine the equity valuation effect of press releases of upgrades or downgrades reflected in the Covalence Ethical Quote, an index ranking the ethical performance of multinational firms. The index is updated quarterly and is comprehensive enough to include 45 criteria reflecting working conditions, impact of product, impact of production, and company institutional impact. Thus, it captures many dimensions of firms’ ethical performance that are not accounted for in previous research. Our research encompasses a joint test of the value relevance (...) of the index itself and the impact of ethical reputation on a firm’s value. We find first a significant causal relationship between stock market reactions and changes in the CEQ. Specifically, disclosures of positive changes in firm ethical performance cause increases in firm value. Second, cross-sectional analysis indicates a positive association between changes in firm ethical performance and both its financial performance and its financial reporting quality. Collectively, these results suggest that the CEQ conveys information that is useful to investors. Further, corporate measures taken to increase ethical performance are associated with positive benefits to shareholders. Finally, investors have concluded that good news about their firms’ efforts to be ethical is worth the cost. (shrink)

Corporate management is torn between either focusing solely on the interests of stockholders or taking into account the interests of a wide spectrum of stakeholders. Of course, there need be no conflict where taking the wider view is also consistent with maximising stockholder wealth. In this paper, we examine the extent to which a conflict actually exists by examining the relationship between a company's positive and negative corporate social responsibility activities and equity performance. In general, we find little evidence to (...) suggest that managers taking a wider stakeholder perspective will jeopardise the interest of its stockholders. However, our findings do suggest that the market is not only influenced by the independent CSR activities, but also the totality of these activities and that the facets that they value do vary over time. It seems that most recently, the market has valued most firms that satisfied minimum requirements in the areas of diversity and environmental protection but were most proactive in the area of employee-relations. (shrink)

The aim of this paper is to investigate the relationship between environmental, social, and governance controversies and firm market value. We use a unique dataset of more than 4000 firms from 58 countries during 2002–2011. Primary analysis surprisingly shows that ESG controversies are associated with greater firm value. However, when interacted with the corporate social performance score, ESG controversies are found to have no direct effect on firm value while the interaction appears to be highly and significantly positive. Building on (...) this evidence, we attempt to explore the channels through which CSP may enhance market value. Conducting sample split analysis indicates that higher CSP score has an impact on market value only for high-attention firms, those firms which are larger, perform better, located in countries with greater press freedom, more searched on the Internet, more followed by analysts, and have an improved corporate social reputation. Thus, our findings provide new insights on the role of firm visibility through which firms can profit from their CSP. (shrink)