CSR Ratings and Value Creation in Turnarounds

Abstract: This study investigates whether turnaround success and value creation are influenced by Corporate Social Responsibility (CSR) ratings. A sample of 355 US cross-industry turnaround cases has been identified for the period between the years 2002 and 2013. Turnaround success and performance are measured using the concept of financial value creation, defined as the difference between the Return On Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC). CSR is measured as relative ranking of environmental, social and governance performance based on Asset4's ratings. Logistic regressions were applied to determine the likelihood of turnaround success and linear regression for change in performance. Contrary to the effects hypothesised and findings of most studies in the field of CSR and financial performance, companies with a lower governance score show superior chances in succeeding in the turnaround as well as in increasing their performance. There is some evidence that a reduced application of environmental best practices can indicate an increased chance of succeeding in a short-term turnaround, however not in the long-run. The social variable has given inconclusive results. Some cost reduction and financial restructuring turnaround strategies have shown significance.