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The Effect of CSR on Stock Performance: New Evidence for the USA and Europe

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Author Info
Urs von Arx () (CER-ETH - Center of Economic Research at ETH Zurich)
Andreas Ziegler () (University of Zurich, Center for Corporate Responsibility and Sustainability)
Abstract

This paper provides new empirical evidence for the effect of corporate social responsibility (CSR) on corporate financial performance. In contrast to former studies, we examine two different regions, namely the USA and Europe. Our econometric analysis shows that environmental and social activities of a firm compared with other firms within the industry are valued by financial markets in both regions. However, the respective positive effects on average monthly stock returns between 2003 and 2006 appear to be more robust in the USA and, in addition, to be nonlinear. Our analysis furthermore points to biased parameter estimations if incorrectly specified econometric models are applied: The seemingly significantly negative effect of environmental and social performance of the industry to which a firm belongs vanishes if the explanation of stock performance is based on the Fama-French threefactor or the Carhart four-factor models instead of the simple Capital Asset Pricing Model.

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Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series Economics working paper series with number 08/85.

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Length: 43 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:eth:wpswif:08-85

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Related research
Keywords: Corporate social responsibility; Environmental performance; Financial performance; Asset pricing models.;

Find related papers by JEL classification:
Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounting
M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Social Responsibility
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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