Which Dimensions of Social Responsibility Concern Financial Investors?

I. Girerd-Potin (), S. Jimenez-Garces () and Pascal Louvet
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I. Girerd-Potin: CERAG - Centre d'études et de recherches appliquées à la gestion - UPMF - Université Pierre Mendès France - Grenoble 2 - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique, UGA [2016-2019] - Université Grenoble Alpes [2016-2019]
S. Jimenez-Garces: CERAG - Centre d'études et de recherches appliquées à la gestion - UPMF - Université Pierre Mendès France - Grenoble 2 - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique, UGA [2016-2019] - Université Grenoble Alpes [2016-2019]
Pascal Louvet: CERAG - Centre d'études et de recherches appliquées à la gestion - UPMF - Université Pierre Mendès France - Grenoble 2 - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique, UGA [2016-2019] - Université Grenoble Alpes [2016-2019]

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Abstract: Social and environmental ratings provided by social rating agencies are multidimensional. The first goal of our paper is to identify a small number of independent and relevant socially responsible (SR) dimensions reflecting a firms' coherent posture toward social issues. We put forward that these dimensions are not exactly the same as the ESG ones (Environment, Social, and Governance). Using the six sub-ratings provided by the Vigeo rating agency, we perform a principal component analysis and we highlight three main independent SR dimensions related to (1) business stakeholders (employees, customers, and suppliers), (2) societal stakeholders (environment and society), and (3) financial stakeholders (stockholders and debt holders). The second objective of our paper is to explore the link between stock returns and these three SR dimensions. Our most notable finding is that for each SR dimension, investors ask for an additional risk premium when they accept to hold non-socially responsible stocks. The cost of equity is thus lower for SR firms. The average premium over the period 2003–2010 is larger for the components "business stakeholders" and "financial stakeholders" than for the component "societal stakeholders." The premium for this last component has only existed since the end of 2008. Since that time, environment and community involvement have become important risk factors strongly considered by investors. For the three dimensions, investors notably penalize large non-social firms and reward small social firms.

Keywords: Socially responsible investment; Asset pricing; Corporate financial performance; Principal component analysis; Social ratings (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (36)

Published in Journal of Business Ethics, 2014, 121 (4), pp.559-576. ⟨10.1007/s10551-013-1731-1⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01333409

DOI: 10.1007/s10551-013-1731-1

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