Does Corporate Social Responsibility Pay Off? -An event study of the impact of corporate entry and exit from the Dow Jones Sustainability World Index on the market value of a company
Abstract: Abstract Advanced Level Thesis, Industrial and Financial Management, School of Business, Economics and Law at Göteborg University, HT 2007. Authors: Yana Chakarova and Josefin Karlsson Tutor: Ted Lindblom Title: Does Corporate Social Responsibility Pay Off? – An event study of the impact of corporate entry and exit from the Dow Jones Sustainability World Index on the market value of a company. Background and problem: Over the last 30 years, the interest in, and demand for, companies to behave socially responsible has increased significantly. Consequently, companies find themselves spending substantial time and capital on satisfying the various stakeholders’ requirements for ethical behavior. Although a vast amount of research aiming to examine whether social responsibility pays off has been carried out, the results are contradicting. Ultimately, the problem is to determine whether corporate social responsibility (CSR) can create value by generating abnormal stock returns or not. Purpose: The purpose of the study is to empirically examine and analyze the impact of CSR on the stock market. The overall aspiration is to provide evidence, indicating whether companies’ CSR activities have an effect on the market value of a company, hence generating shareholder value in the short run. Limitations: The scope of this study is to quantify the impact of a corporate entry or exit from the Dow Jones Sustainability World Index (DJSI World) within the time frame of year 2002 to 2007. Methodology: The method applied in this study is the event study method. Basically, an event study aims to measure possible abnormal stock returns as a reaction to the release of a specific piece of new information. By calculation of abnormal stock returns, conclusions can be made concerning CSR’s effect on the market value of companies. Empirical results and conclusion: The main conclusion of this study is that a positive or negative change in a company’s dedication to CSR, as measured by corporate entries or exits from the DJSI World, does not generate significant abnormal returns. However, different market reactions can be observed when decomposing the sample across a geographical or a time perspective. Suggestions for further research: Further research encompasses investigating the potential difference in market reaction to CSR activities between companies in various industries, changing the chosen event date in this study and comparing the market reaction to corporate exits and entries between different social indexes.
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