Do capital markets value corporate social responsibility? Evidence from seasoned equity offerings

Zhi-Yuan Feng, Carl R. Chen and Yen-Jung Tseng

Journal of Banking & Finance, 2018, vol. 94, issue C, 54-74

Abstract: We explore whether firms’ corporate social responsibility (CSR) activities provide added value to capital market participants through seasoned equity offerings (SEOs). SEOs represent cleaner exogenous activity alleviating the reverse causality issue plaguing many prior studies examining the relation between firm performance and CSR. Using a large sample of U.S. SEOs, we find high-CSR issuers experience fewer negative market reactions to SEO announcements. We also show ethical issuers have incentive to provide extensive and informative disclosures, which mitigate the degree of information asymmetry, thereby decreasing SEO underpricing. Among CSR categories, we find issuers engaging in community and environmental CSR activities and improving the rights of women and minorities are more effective at reducing SEO negative announcement returns and underpricing. Our findings remain robust after controlling for possible self-selection bias and endogeneity problems. Overall, our findings support the stakeholder value maximization view of stakeholder theory and ethical theory.

Keywords: Corporate social responsibility; Seasoned equity offerings; Announcement returns; Underpricing (search for similar items in EconPapers)
JEL-codes: G1 G12 G34 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:94:y:2018:i:c:p:54-74

DOI: 10.1016/j.jbankfin.2018.06.015

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