Does corporate social responsibility affect the cost of capital?

We examine the effect of corporate social responsibility (CSR) on the cost of equity capital for a large sample of US firms. Using several approaches to estimate firms’ ex ante cost of equity, we find that firms with better CSR scores exhibit cheaper equity financing. In particular, our findings suggest that investment in improving responsible employee relations, environmental policies, and product strategies contributes substantially to reducing firms’ cost of equity. Our results also show that participation in two “sin” industries, namely, tobacco and nuclear power, increases firms’ cost of equity. These findings support arguments in the literature that firms with socially responsible practices have higher valuation and lower risk.     

Does stock market index adjustment affect environmental information disclosure? Evidence from China

This study empirically investigated the effect of adjustment of the China Securities Index 300 (CSI 300) on environmental information disclosure (EID) by index constituents, based on propensity score matching and difference-in-difference approaches. The results showed that the inclusion in the CSI 300 significantly improved the quality of EID by firms. Moreover, this positive impact was more pronounced among firms with lower agency costs and those located in regions with a stronger legal environment. Further testing of the mediating mechanism revealed that becoming an index constituent served to curb opportunistic behavior by managers arising from shortsightedness. Our results were valid after addressing the potential endogeneity between index adjustment and EID and remained unchanged in various other robustness tests. The findings provide support for the positive impact of stock market index adjustment on non-financial information disclosure and have practical implications for decision-making regarding EID in China and other emerging markets.     

Strange bedfellows? Voluntary corporate social responsibility disclosure and politics

We show a reliable association between voluntary corporate social responsibility (CSR) disclosure and company political interests, which we proxy by company employees’ contributions to political action committees and statewide voting in presidential elections. This relation is most pronounced for the contributions of Democratic employees at companies in states that vote for the Democratic presidential candidate. We also show a positive association between corporate political contributions and excess stock returns. A portfolio strategy of investing based on company size, CSR disclosure intensity and corporate political contributions produces a significant positive mean excess stock return of 4.5 per cent over 3 months following CSR disclosure.     

Equity market response to natural disasters: Does firm's corporate social responsibility make difference?

This study investigates the role of corporate social responsibility (CSR) in explaining firms' stock performance in the wake of natural disasters in the United States. Using event study and multivariate regression analyses, we find that market performance of CSR firms is better than that of non-CSR firms when such disasters occur. We also highlight the importance of environmentally friendly practices in driving the performance of CSR firms. Our results indicate that firms practicing environmental CSR are more resilient to such disasters than nonenvironmental CSR firms. Cross-sectional analyses show that such positive market reaction of CSR firms is more pronounced when firms have low financial constraints, low information asymmetry, and high social capital.     

Does corporate social responsibility impact equity risk? International evidence

Review of Quantitative Finance and Accounting - Based on a large panel of listed firms from 52 countries in the period 2002–2020, we investigate the relationship between corporate social...     

Does the adoption of IFRS affect corporate social disclosure in annual reports?

In this exploratory study we investigate the impact of the implementation of IFRS on corporate social disclosures (CSD) within the context of stakeholder theory. We measure the level of CSD in annual reports using a disclosure instrument based on the United Nations Conference on Trade and Development report “Guidance on Corporate Responsibility Indicators in Annual Reports”. We find that IFRS adoption had a differential effect on CSD based on a firm's institutional setting i.e., the stakeholder–management relationship prevalent in their institutional environment. Firms in the stakeholder countries did not have a significant change in the level of CSD following the mandatory adoption of IFRS while firms from the shareholder countries experienced a significant increase over the same period resulting in shareholder countries providing an overall higher level of CSD after IFRS adoption than stakeholder countries. These findings suggest that firms' reactions to the requirements of IFRS and the stakeholder pressure to provide additional CSD are influenced by institutional environment. Further, our results provide support for the use of stakeholder theory to predict the level of CSD.     

Does corporate social responsibility help the survivorship of SMEs and large firms?

Using a sample of 2480 firms from 51 countries covering the period 2010–2015, we find that firms with more effective corporate governance mechanisms are more likely to be more engaged in CSR. Consistent with the stakeholder theory and the conflict resolution model, this result suggests that managers adopt effective governance mechanisms together with CSR engagement in an attempt to mitigate conflicts among stakeholders. Moreover, after controlling for endogeneity and simultaneity issues, we find that both CSR engagement and corporate governance mechanisms have a significantly negative influence on the firms' risk of financial distress measured by the Altman et al. model (1995). Our results also show that the favorable influence of CSR on the firms' capability of survivorship is more pronounced in SMEs than in large firms.     

Does the weather affect stock market volatility?

This paper investigates the empirical association between stock market volatility and investor mood-proxies related to the weather (cloudiness, temperature and precipitation) and the environment (nighttime length). Overall, our results suggest that cloudiness and length of nighttime are inversely related to historical, implied and realized measures of volatility. The strength of association seems to vary with the location of an exchange on Earth with respect to the equator. Weather deviations from seasonal norms and dummies representing extreme weather conditions do not offer additional explanatory power in our datasets.     

Does corporate social responsibility affect mutual fund performance and flows?

We use an asset-weighted composite corporate social responsibility (CSR) fund score to study the effects of CSR on fund performance and flows. Compared to low-CSR funds, high-CSR funds display poorer performance, stronger performance persistence, a weaker performance-flow relationship, and comparable persistence in flows. These findings are consistent with investors in high-CSR funds deriving utility from non-performance attributes.     

Does social responsibility begin at home? The relation between firms’ pension policies and corporate social responsibility (CSR) activities

Review of Accounting Studies - Pension freezes are highly visible corporate actions with the potential to hurt the firms’ reputation as “responsible” employers. We document that...     

Does accounting conservatism improve the corporate information environment?

This study investigates whether and how accounting conservatism improves the corporate information environment. We argue that conservatism facilitates the flow of firm-specific information from corporate insiders to outsiders and leads to a high-quality information environment. Using the Basu (1997) model to capture the extent of accounting conservatism and firm-specific return variation to proxy for the quality of information environment, we find that conservatism is positively associated with the improvement of the corporate information environment in our sample of 43 countries. We also find that the information role of conservatism is more pronounced in countries with weaker protection of private property rights, suggesting that conservatism substitutes for legal institutions in ensuring the quality of information environment.     

Does the mandatory disclosure of audit information affect analysts' information acquisition?

This paper explores the effect of public information on analysts' information acquisition. By introducing the implementation of the Key Audit Matters (KAM) Disclosure Standards for China's firms cross-listed in Hong Kong in 2017, we present evidence that KAM disclosure reduces analysts' firm visits, which is an important channel of information acquisition. The effect is particularly pronounced for firms with audit partner rotation and low institutional ownership. KAM disclosure by industrial leaders has a spillover effect on analyst visits for peer firms. Disclosure also improves the frequency and quality of analysts' forecasts and firms' information environments, indicating that KAMs are informative and audit information is an important determinant of analysts' information acquisition. Our study reveals the real effect of KAM disclosure on analyst decisions, which may be of interest to regulators concerned with the mandatory disclosure of audit information and capital market efficiency.     

Is the information produced in the stock market useful for depositors?

The information produced by sophisticated investors in the stock market may be useful for uninformed depositors. Since much information is not produced for Shinkin banks (cooperatives) in Japan, relying on the information from the stock market may be an efficient decision for these depositors. This paper provides empirical evidence that Shinkin depositors seemed to withdraw funds after observing a fall in the stock prices of other banks.     

Does financial market liberalization increase the degree of market efficiency? The case of the Athens stock exchange

In this paper we assess if the financial market liberalization introduced in the beginning of the 1990s in Greece has changed the degree of market development (efficiency) by studying time-varying global Hurst exponents. Our results suggest that changes in financial market liberalization have important positive implications on the degree of development of stock markets. These results have important policy implications for the development of stock markets around the world.     

Does futures trading increase stock market volatility? The case of the Nikkei stock index futures markets

We propose new tests to examine whether stock index futures affect stock market volatility. These tests decompose spot portfolio volatility into the cross-sectional dispersion and the average volatility of returns on the portfolio's constituent securities. Our tests show that for Nikkei stocks spot portfolio volatility increased and cross-sectional dispersion decreased compared with average volatility when Nikkei futures began trading on the Osaka Securities Exchange, but not on the Singapore International Monetary Exchange. For non-Nikkei stocks, no shift occurred when futures trading began on either exchange. These findings are consistent with the hypotheses that futures trading increases spot portfolio volatility but that there is no volatility “spillover” to stocks against which futures are not traded. However, the increase in volatility attributable to futures trading is small compared with volatility shifts induced by changes in broad economic factors.     

The market reaction to cross-listings: Does the destination market matter?

This paper examines (i) whether market reactions to cross-listings differ across destination markets and (ii) to what extent the following explanations for value creation around cross-listings can account for differences in market reactions across cross-listings on various destination markets: overcoming market segmentation, increased market liquidity, improved information disclosure, and better investor protection (“bonding”). We analyze 526 cross-listings from 44 different countries on eight major stock exchanges and document significant announcement returns of 1.3% on average for cross-listings on US exchanges, 1.1% on London Stock Exchange, 0.6% on exchanges in continental Europe, and 0.5% (not significant) on Tokyo Stock Exchange. We find evidence consistent with improved disclosure and bonding creating value for cross-listings on US exchanges, while overcoming segmentation and bonding are associated with higher announcement returns on the London Stock Exchange. The evidence is mixed for continental European exchanges and for Tokyo. Our results highlight the role of the destination market in value creation around cross-listings.     

The euro area stock market channel: Does one size fit all?

This paper analyzes the first part of the stock market channel of monetary policy in the euro area. We find heterogeneous reactions of euro area stock markets to unexpected ECB’s interest rate decisions. Splitting all markets into two groups, covering the stock markets reacting significantly to monetary policy shocks and the ones which do not, each sub-group reveals a higher degree of homogeneity. Interestingly, the markets, which react significantly to unexpected interest rate decisions are the markets with the highest stock market capitalization. In general, we find ECB’s decisions to be well anticipated by stock markets.     

Do climate risk beliefs shape corporate social responsibility?

Global climate change is one of the most pressing issues of our time, potentially affecting everyone, both individuals and businesses. This paper examines whether differences in beliefs about climate change affect firms' decision-making in Corporate Social Responsibility (CSR) commitment. Using county-level climate change beliefs data from Yale Climate Opinion Maps, we find that firms' Environmental, Social, and Governance (ESG) scores are higher if they are located in counties where more people believe in global climate change. We then use natural disasters as exogenous shocks to the beliefs about climate risk and continue to find a positive association between CSR and perceptions of climate risks. Furthermore, we discover a stronger correlation between CSR and climate risk beliefs when firms have more local investors.     

Does the stock market influence investor everyday decisions? The case of parking violations

We explore in this study whether stock market returns influence investor decisions in their everyday life. We find that past and contemporaneous US stock market returns are related negatively to the registered number of parking violations in New York City between 2014 and 2020. We support as the channel of this relationship the level of investor anxiety. These results support extensions of the utility theory demonstrating the significance of emotions on individuals' decisions. Overall, this study shows evidence of the societal impact of finance.     

Does corporate social responsibility protect shareholder value from the shock of COVID-19? Evidence from China

Our study examines whether and how increased engagement in social responsibility activities by a firm affects movements in its stock prices during the COVID-19 public health crisis, which is regarded as an exogenous shock to economic ties between focal firms and their customers, employees, and suppliers. We find that corporate social responsibility has an inverted U-shaped relationship with shareholder value. The nonlinear relationship is more dominant at firms with higher cash-flow constraints and weaker cost-adjustment capabilities. Our research also generates meaningful implications for business practices.