Can corporate social performance mitigate the risk of extreme stock returns?

Fouad Ben Abdelaziz, Messaoud Chibane and Ano Kuhanathan

The Quarterly Review of Economics and Finance, 2024, vol. 98, issue C

Abstract: It is commonly believed that there exists a strong negative association between corporate social performance (CSP) and firm risk.11The authors would like to thank an anonymous reviewer for his careful reading of our manuscript and his many insightful comments and suggestions which have substantially improved the initial paper. The authors would alsolike to thank Lionel Tangy Malca and Alexandre Coureaud from HOMA Capital for fruitful and constructive discussions around the link between ESG and extremes stocks returns. To investigate the structure of this relationship, we decompose the dynamics of large U.S. company stock returns into two components: Gaussian and non-Gaussian innovations. Our findings indicate that CSP affects firm risk mainly through the non-Gaussian risk channel. In particular, it significantly reduces the magnitude of extreme returns. We find no consistent nor robust effect of CSP on the frequency of price boom and crash probability as it varies widely across industries. Last, we find no statistically significant impact of CSP on standard Gaussian volatility risk.

Keywords: Corporate social performance; ESG; Boom/crash risk; Volatility (search for similar items in EconPapers)
JEL-codes: E31 E58 G12 G13 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:98:y:2024:i:c:s1062976924001236

DOI: 10.1016/j.qref.2024.101917

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