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Is Socially Responsible Investment Profitable?

Jiro Yoshida ()

No CARF-J-055, CARF J-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: In this paper, I review theory and empirical results on Socially Responsible Investment (SRI), and analyze returns to SRI in Japan. Theoretically,SRI can deliver higher returns than standard benchmark portfolios, but such higher returns are likely to be temporary. The shareholders of a company with a high standard of Corporate Social Responsibility can earn high returns while the market valuation of the company is revised upward. However, return reverts to the original level or lower afterwards. Japanese SRI data support this hypothesis: The SRI outperformed TOPIX in the 1990?s until SRI became widely recognized, but its returns are indistinguishable from those to TOPIX after 2000. Theoretical predictions in this paper are helpful in understanding mixed results on SRI returns in the past empirical research.

Pages: 24 pages
Date: 2008-10
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