How to measure Corporate Social Responsibility

Marco Nicolosi, Stefano Grassi () and Elena Stanghellini

No 96/2011, Quaderni del Dipartimento di Economia, Finanza e Statistica from Università di Perugia, Dipartimento Economia

Abstract: Compliance with Corporate Social Responsibility (CSR) standards may require capacity that varies from one aspect to the other and companies in different industries may encounter different difficulties. Since CSR is a multidimensional concept, latent variable models may be usefully employed to provide a unidimensional measure of the ability of a firm to fulfil CSR standards. A methodology based on Item Response Theory has been implemented on the KLD sustainability dataset. Results show that companies in the industries Oil & Gas, Industrials, Basic Materials and Telecommunications have a higher difficulty to meet the CSR standards. Criteria based on Environment, Community relations and Product quality have a large capacity to select the firms with the best CSR performance, while Governance does not exhibit similar behavior. A stock selection based on the ranking of the firms according to our CSR measure outperforms, in terms of risk-adjusted returns, stock selection based on other criteria.

Keywords: Socially Responsible Investment; CSR ability; latent variable model; item response theory (search for similar items in EconPapers)
JEL-codes: C43 G11 G14 G19 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2011-10-15
New Economics Papers: this item is included in nep-bec and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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