Inflation, the Corporate Greed Narrative, and the Value of Corporate Social Responsibility

Ana Mão- de-Ferro and Stefano Ramelli
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Ana Mão- de-Ferro: University of Zurich - Department of Banking and Finance; Swiss Finance Institute
Stefano Ramelli: University of St. Gallen - School of Finance; Swiss Finance Institute

No 23-06, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Inflation can significantly undermine companies' relationships with their customers, employees, and other stakeholders, spawning a crisis of trust. This is particularly true in a period when many citizens accuse corporations of excessively raising prices to maximize profits. Studying the cross-sectional reactions of US stocks to inflation over the period 2018-2022, we find that in the month following a higher inflation rate, equity investors reward firms with stronger social capital, as proxied by their corporate social responsibility levels. The effect holds using different measures of inflation, including region-specific ones. The inflation-hedging property of CSR is stronger for firms headquartered in Democratic US states (those most exposed to the "corporate greed'' narrative of inflation) and for firms with higher customer awareness and intangible capital. Overall, the findings spotlight inflation as a crisis in stakeholder trust and provide new insights into the importance of social capital for firm value.

Keywords: CSR; ESG; Inflation; Stock returns; Social capital (search for similar items in EconPapers)
JEL-codes: G12 G32 M14 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2023-01
New Economics Papers: this item is included in nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2306

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