Corporate social performance and financial risk: Further empirical evidence using higher frequency data

Julie Ayton, Natalia Krasnikova and Issam Malki

International Review of Financial Analysis, 2022, vol. 80, issue C

Abstract: Using a unique dataset of corporate social responsibility rating – available on a monthly basis – we shed new light on the relationship between corporate social performance (CSP) and firm risk. Where previous studies use annual (at best) measures of CSP, assuming that a change in CSP leads a change in risk, we formally test the direction of the relationship using Granger causality. Looking at large UK companies over 2002–2018 (for a total number of 19,832 firm-months), we reject any causality (either way) between CSP and financial risk (both systematic and idiosyncratic risk). This shows that the CSP-risk relationship is not an endogenous one, contrary to what previous evidence has found. Given the structure of our panel data (long T and short N), we apply GLS based estimator to correct for serial correlation in our panel regressions. We find strong evidence that CSP has a negative impact on idiosyncratic risk; however, the effect of CSP on systematic risk is not statistically significant. The existence of a contemporaneous, rather than lagged relationship doesn't fare well with established CSP theories. Overall, our original approach has opened a new door to further the study of the link between CSP, financial performance and financial risk.

Keywords: Corporate social performance; Financial risk; Granger causality; Panel regression; UK companies (search for similar items in EconPapers)
JEL-codes: C33 G32 G39 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521922000102
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:80:y:2022:i:c:s1057521922000102

DOI: 10.1016/j.irfa.2022.102030

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().