A learning curve of the market: Chasing alpha of socially responsible firms

Zhichuan Li, Dylan B. Minor, Jun Wang and Chong Yu

Journal of Economic Dynamics and Control, 2019, vol. 109, issue C

Abstract: This paper explores stock market reactions to corporate social performance. We construct a value-weighted portfolio based on the list of “100 Best CSR companies in the world” published on the Forbes’ website by Reputation Institute. This portfolio yields statistically significant annual abnormal returns of 1.81% and 1.26%, by controlling for Carhart four factors and Fama-French five factors, respectively (2.41% and 1.84%, respectively for an equal-weighted portfolio). Moreover, such abnormal returns decrease as time passes, especially after the inaugural publication of the CSR lists in 2013. Furthermore, we find that companies with better social performance are more likely to have positive earnings surprises, and that their returns are more sensitive to earnings surprises. The results have three implications: firstly, CSR reputation contributes positively to a firm's short-term superior equity performance; secondly, the CSR lists facilitate market correction of mispricing intangibles such as CSR reputation — abnormal returns decrease as the market gradually learns about the value of firms’ social performance; lastly, the paper contributes to the socially responsible investing (SRI) screens and provides guidance for investors who would like to do well financially by doing good socially.

Keywords: Corporate social responsibility; Intangibles; Market efficiency; Earnings surprises; Abnormal returns (search for similar items in EconPapers)
JEL-codes: E2 G1 M1 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:109:y:2019:i:c:s0165188919301691

DOI: 10.1016/j.jedc.2019.103772

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