How Do Investors Value Corporate Social Responsibility? Market Valuation and the Firm Specific Contexts
Journal of Business Research
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© 2020 Elsevier Inc. In this paper, we offer a new explanation regarding the specific contexts when CSR will have a positive impact on a firm's market value. We argue that investors will value CSR positively if the firm-specific context implies that CSR is expected to create a market premium through the mechanisms of downside risk reduction or upside efficiency enhancement. Specifically, firms that have high financial risk or environmental risk are able to benefit from CSR as a risk mitigation strategy, and firms that have high earnings stability are able to benefit from CSR as an efficiency enhancement strategy. Using panel data for U.S. firms from 2002 to 2011, we show that CSR is beneficial to firm value when a firm faces high financial and/or environmental risk or has high earnings stability, whereas when a firm operates in a low-risk environment or has low earning stability, CSR is detrimental to firm value.
Corporate social responsibility; Efficiency enhancement mechanism; Firm-specific contexts; Market valuation; Risk reduction mechanism
Business | Business Law, Public Responsibility, and Ethics
How Do Investors Value Corporate Social Responsibility? Market Valuation and the Firm Specific Contexts.
Journal of Business Research, 125