Shareholder Reactions to Socially Responsible and Irresponsible Firm Behavior: An Event Study Approach - The Impact of News Concerning Employee and Community Related CSR Events on Stock Returns

Abstract: This paper investigates the impact on stock returns from positive and negative corporate social responsibility (CSR) events communicated via the Wall Street Journal. We derive a conceptual framework for the definition of CSR that enables us to identify relevant events. An event study is conducted on 128 company-specific events occurring in the time between 2010-2012. Based on the resource-based view, the good management theory and the CSR as an insurance view, we suggest a positive relationship between CSR and stock returns. In line with this we draw on the resource-based view, good management theory and CSR as an insurance view to derive and test hypotheses about the potential impact of CSR events. We find that positive events result in significantly positive mean cumulative abnormal returns. Negative events, on the other hand, do not result in significant mean cumulative abnormal returns. Furthermore, the theory that high CSR performance has an insurance-like effect when negative events occur could not be supported. We draw the conclusion that shareholders reward companies for positive CSR activities. It could not be inferred whether companies are punished for their misdeeds.