CSR: It pays to be good (but not too good)

Dec 20, 2013
<p>A roundup of academic research from the world of IR studies</p>

You can’t please all the people all the time – and when it comes to CSR, it pays to know just how far to go.

Researchers at the University of Missouri analyzed a large collection of positive and negative CSR event announcements. ‘At first, we thought all announcements about CSR activities (such as efforts to boost employee health and safety) would have either no effect on company value or a positive effect,’ says study co-author Christopher Groening, now assistant professor of marketing at Kent State University. ‘And we thought all announcements about CSR failings (such as product failures or third-party revelations of environmental pollution) would either have no effect or a negative effect.’

Instead, the investigators observe that about half the announcements of either kind produce a result opposite to what they expected: 50 percent of CSR activity announcements have a negative effect on company value while half the announcements about irresponsibility boost a company’s stock value.

Why this incongruence between stakeholders and stock market outcomes? ‘The better a firm’s financial performance, the less chance of congruent stock market returns,’ Groening explains. ‘CSR is just like any other business activity: you can, for example, expend resources on training employees or increasing factory efficiency. But if a firm already has good relationships with its stakeholders, as measured by its financial performance, devoting more resources to these activities will produce diminishing returns.’

Groening says the same holds true for CSR: ‘If you already treat all stakeholders well (as defined by company financial performance), doing more isn’t perhaps the best use of resources.’

When calling counts

Greek researchers say accompanying M&A announcements with a conference call dampens trading volume and price volatility spikes. The effect is most pronounced for relatively smaller firms without an equity options market in their common shares.

‘Conference calls not only smooth the transmission of M&A-related information in the stock market but also reduce informed trading through options markets before the event,’ says study co-author Andrianos Tsekrekos, assistant professor of finance at the Athens University of Economics and Business. ‘Firms without equity options should be more willing to hold conference call meetings as an alternative way to disseminate M&A-related information into the marketplace.’

Tsekrekos, along with study co-authors Georgia Siougle and Spyros Spyrou, examined all M&A announcements by FTSE 350 firms between 1997 and 2007.

World o’ Research 

  • The stock market reacts favorably to negative media exposure of corporate response to climate change, according to a US/Taiwanese research team. The effect is less pronounced for companies in polluting industries. The researchers conclude that ‘socially responsible action is costly’
  • Japanese capital markets respond positively to the publication of CSR reports. But researchers at Asia Pacific University say the favorable reaction builds up slowly compared with other CSR-related events such as the announcement of a company’s environmental award, for example 
  • The optimism in CEO letters to shareholders is actually sincere, according to a study published in the Journal of Business Ethics. The findings contradict prior studies examining the association between letter tone and future corporate performance.
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