The Relative Valuation of Socially Responsible Firms: an Exploratory Study

Various aspects of “corporate social responsibility” (CSR) have recently captured the attention of researchers in the fields of economics and finance (Orlitzky et al. 2003; Statman 2005; Goss and Roberts 2006; Milevsky et al. 2006). This phenomenon follows more than a decade of research and dozens of studies published largely in the strategic management and business ethics literatures which have striven to explore the links between corporate social performance (variously defined) and corporate financial performance (Waddock and Graves 1997; Roman et al. 1999; Margolis and Walsh 2001; Orlitzky and Benjamin 2001). While one interpretation of these studies may be that the evidence for a causal, or even de facto link between social and financial performance remains elusive, another would be that the balance of evidence suggests that enhanced social performance may be a lagging indicator of effective management and therefore a leading indicator of future financial performance (Wheeler 2003). In their 2003 review of 52 studies internationally, Orlitzky and colleagues were somewhat unequivocal in judging the evidence as favoring social responsibility as a more likely benefit than impairment to investors.