This study investigates the short-run and long-run effects of corporate social responsibility (CSR) on firms’ financial performance through market-adjusted stock returns from one year to three years holding periods. We analyze the year 2015 CSR data of 958 publicly-listed companies from 11 countries in Asia. This study also reflects on the disaggregated effects of three pillars of CSR, namely: environment, social, and governance. We conjecture that the trade-off does not exist between building corporate citizenship and financial performance, in light of increasing attention of CSR among Asian countries. We also examine the phenomenon in the contexts of country and sector levels. Our main findings reveal that CSR has a cumulative effect, which reinforces better financial performance in the future. This study also shows mixed evidence regarding the disaggregated effect of CSR pillars. Moreover, we find that the impact of CSR and its pillars on market-adjusted stock returns vary per country and per sector. We argue that our results are caused by regulatory compliance, priorities, demand from stakeholders, cultural factors, and macroeconomics considerations. The effect of CSR on market-adjusted stock returns varies over time and creates a positive and negative result depending on the period of analysis because this strategy is a long-term process. Lastly, insights into the importance of building corporate citizenship on sustainability and firm performance are elaborated.
Keywords: Asian markets, corporate finance, corporate social responsibility, market-adjusted stock returnAlexander, G. J., & Buchholz, R. A. (1978). Corporate social responsibility and stock market performance. Academy of Management journalJournal, 21(3), 479-–486.
Anton, W. R. Q., Deltas, G., & Khanna, M. (2004). Incentives for environmental self-regulation and implications for environmental performance. Journal of eEnvironmental eEconomics and mManagement, 48(1), 632-–654.
Arsoy, A. P., Arabaci, Ö., & Çiftçioğlu, A. (2012). Corporate social responsibility and financial performance relationship: The case of Turkey. Journal of Accounting & Finance, (53), xxx–xxx.
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of mManagement, 17(1), 99-–120.
Berens, G., Van Riel, C. B., &Van Rekom, J. (2007). The CSR-quality trade-off: When can CSR and corporate ability compensate each other? Journal of Business Ethics, 74(3), 233-–252.
Brammer, S., & Millington, A. (2008). Does it pay to be different? An analysis of the relationship between corporate social and financial performance. Strategic Management Journal, 29(12), 1325-–1343.
Brammer, S., Brooks, C., & Pavelin, S. (2006). Corporate social performance and stock returns: UK evidence from disaggregate measures. Financial managementManagement, 35(3), 97-–116.
Brouhle, K., Griffiths, C., & Wolverton, A. (2009). Evaluating the role of EPA policy levers: An examination of a voluntary program and regulatory threat in the metal-finishing industry. Journal of Environmental Economics and Management, 57(2), 166-–181.
Brower, J., & Mahajan, V. (2013). Driven to be good: A stakeholder theory perspective on the drivers of corporate social performance. Journal of business eEthics, 117(2), 313-–331.
Brown, J. A., & Forster, W. R. (2013). CSR and stakeholder theory: A tale of Adam Smith. Journal of bBusiness eEthics, 112(2), 301-–312.
Carhart, M. M. (1997). On persistence in mutual fund performance. The Journal of fFinance, 52(1), 57-–82.
Chapple, W., & Moon, J. (2005). CSR (CSR) in Asia: A seven-country study of CSR web site reporting. Business and societySociety, 44(4), 415-–441.
Chen, R. C., Hung, S. W., & Lee, C. H. (2017). Does corporate value affect the relationship between CSR and stock returns? Journal of Sustainable Finance and Investment, 7(2), 188-–196.
Cheung, Y. L., Tan, W., Ahn, H. J., & Zhang, Z. (2010). Does corporate social responsibility matter in Asian emerging markets? Journal of Business Ethics, 92(3), 401-–413.
Darnall, N., Henriques, I., & Sadorsky, P. (2008). Do environmental management systems improve business performance in an international setting? Journal of International Management, 14(4), 364-–376.
Derwall, J., Guenster, N., Bauer, R., & Koedijk, K. (2005). The eco-efficiency premium puzzle. Financial Analysts Journal, 61(2), 51-–63.
Edmans, A. (2012). The link between job satisfaction and firm value, with implications for CSR. The Academy of Management Perspectives, 26(4), 1-–19.
Fama, E., & French, K. (2002). The cross-section of expected stock returns., Journal of Finance, 47, 427-–465.
Flammer, C. (2013). CSR and stock prices: The environmental awareness of shareholders. Academy of Management Journal, 56(3), 758-–781.
Freeman, R. E. (1984). Strategic management: A stakeholder perspective. Boston: Pitman, 13.
Friedman, M. (1970, September 13). The social responsibility of business is to increase its profits. New York Times Magazine, September 13:pp. 32-33, 122-124.
Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. The qQuarterly jJournal of eEconomics, 118(1), 107-–156.
Groza, M. D., Pronschinske, M. R., & Walker, M. (2011). Perceived organizational motives and consumer responses to proactive and reactive CSR. Journal of Business Ethics, 102(4), 639-–652.
Jo, H., & Harjoto, M. A. (2011). Corporate governance and firm value: The impact of CSR. Journal of bBusiness eEthics, 103(3), 351-–383.
Jun, H. (2016). Corporate governance and the institutionalization of socially responsible investing (SRI) in Korea. Asia Pacific Business Review, 22(3), 487-–501.
Kao, E. H., Yeh, C. C., Wang, L. H., & Fung, H. G. (2018). The relationship between CSR and performance: Evidence in China. Pacific-Basin Finance Journal, x, xx–xx.
Lin, C. S., Chang, R. Y., & Dang, V. T. (2015). An integrated model to explain how CSR affects corporate financial performance. Sustainability, 7(7), 8292-–8311.
Lin, H. Y., & Amin, N. (2016). The relationship between corporate social performance and financial performance: eEvidences from Indonesia and Taiwan. European Journal of Business and Social Sciences, 5(03), 50-–62.
Lins, K. V., Servaes, H., & Tamayo, A. (2017). Social capital, trust, and firm performance: The value of CSR during the financial crisis. The Journal of Finance, 72(4), 1785-–1824.
McWilliams, A., Siegel, D. S., & Wright, P. M. (2006). CSR: Strategic implications. Journal of mManagement sStudies, 43(1), 1-–18.
Molloy, L., Erekson, H., & Gorman, R. (2002). Exploring the relationship between environmental and financial performance. Miami University.
Moskowitz, M. (1972). Choosing socially responsible stocks. Business and Society Review, 1(1), 71-–75.
Nakamura, E. (2011). Does environmental investment really contribute to firm performance? An empirical analysis using Japanese firms. Eurasian Business Review, 1(2), 91-–111. note_WEB.pdf
Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization sStudies, 24(3), 403-–441.
Peters, R., & Mullen, M. R. (2009). Some evidence of the cumulative effects of CSR on financial performance. Journal of Global Business Issues, 3(1), 1–xx.
Pham, P. K., Suchard, J. A., & Zein, J. (2012). Corporate governance and the cost of capital: Evidence from Australian companies. Journal of Applied Corporate Finance, 24(3), 84-–93.
Renneboog, L., Ter Horst, J., & Zhang, C. (2008). Socially responsible investments: Institutional aspects, performance, and investor behavior. Journal of Banking and Finance, 32(9), 1723-–1742.
Ritter, J. R., & Welch, I. (2002). A review of IPO activity, pricing, and allocations. The Journal of Finance, 57(4), 1795-–1828.
Russo, A., & Perrini, F. (2010). Investigating stakeholder theory and social capital: CSR in large firms and SMEs. Journal of Business eEthics, 91(2), 207-–221.
Sharma, B. (2013). Contextualizing CSR in Asia: CSR in Asian economies. Available online.Retrieved from http://ink.library.smu.edu.sg/lien_reports
Singh, P. J., Sethuraman, K., & Lam, J. Y. (2017). Impact of CSR dimensions on firm value: Some evidence from Hong Kong and China. Sustainability, 9(9), 1532.
Soana, M. G. (2011). The relationship between corporate social performance and corporate financial performance in the banking sector. Journal of bBusiness eEthics, 104(1), 133–xxx.
Thomson Reuters. (2018). ESG methodology. Available online:Retrieved from https://financial.thomsonreuters.com/content/dam/openweb/documents/pdf/financial/ESG-scores-methodology.pdf
Vance, S. C. (1975). Are socially responsible corporation’s good investment risks? Management rReview, 64(8), 19-–24.
Von Arx, U., & Ziegler, A. (2014). The effect of CSR on stock performance: New evidence for the USA and Europe. Quantitative Finance, 14(6), 977-–991.
Vujicic, T. (2015). CSR and stock returns: Examining US stock performance. Retrieved from SSRN: http://ssrn.com/abstract=2595769
Wagner, T., Lutz, R. J., & Weitz, B. A. (2009). Corporate hypocrisy: Overcoming the threat of inconsistent CSR perceptions. Journal of Marketing, 73(6), 77-–91.
Wang, Y. G. (2011). CSR and stock performance—evidence from Taiwan. Modern eEconomy, 2(05), 788–xxx.
Ziegler, A., Busch, T., & Hoffmann, V. H. (2011). Disclosed corporate responses to climate change and stock performance: An international empirical analysis. Energy Economics, 33(6), 1283-–1294.