Download Corporate Social Responsibility and the Market Pricing of Corporate

Corporate Social Responsibility
and the Market Pricing of Corporate Earnings
ABSTRACT:
Does a firm’s corporate social responsibility (CSR) performance relate to the market pricing
of its earnings? While prior CSR research has studied benefits of CSR activities from a
managerial reporting and analyst perspectives, we are the first to focus on an investor
behavior perspective. We find in a short window around earnings announcements higher
abnormal stock returns sensitivity to earnings surprises and higher abnormal trading volumes
for firms with higher CSR activities. We also find that the well-known post-earnings
announcement drift decreases in CSR performance. These findings are distinct from the
previously documented corporate governance effect, robust to various measures of earnings
surprises, abnormal returns, and CSR performance, and hold for a battery of validity checks
that considers a possible endogeneity problem, and a variety of alternative explanations.
Keywords: corporate social responsibility; market response to earnings announcements;
post-earnings announcement drift; trading volume
JEL Classification: M14, M41, G14