The Impact of Substantial CSR Efforts on the Financial Value of a Company

Ida Melbye & Louise Kragh-Jakobsen

Student thesis: Master thesis


While corporations are increasingly engaging incorporate social responsibility (CSR), the impacts from CSR on the corporate financial performance (CFP) of a firm remain widely debated.The aim of this thesis was to investigate how substantial CSRefforts affect the financial value of a company by analyzing to what extent financial markets react to the release of the Global 100, a rank of the hundred most sustainable companies in the world. More specifically, we have examined shareholder wealth effects associated with the news that companies are either selected for or removed from the list.The analysis is carried out over the period 2005-2019 by the use of the event study methodology and supplemented by cross-sectional analyses. Aggregately, we conclude that the announcement returns associated with the Global 100 are non-significant. However, our results also indicate that certain sub-groups within the data sample experience significant stock price movements in response to the releaseof the list. In fact, we have found that a firm’s industry group, the book-to-market ratio and firm location have an impact on the announcement returns, while firm size, corporate governance structures and best-in-rank nominations do not significantly influence the abnormal returns. We conclude that the market reaction of companies from the pharmaceutical industry and companies with low book-to-market ratios (i.e. high growth firms) exhibit a negative relationship between CSR and CFP. In terms of firm location, the findings suggest that European firms are significantly rewarded when being removed from the Global 100, also indicating a negative relationship between CSR and CFP. However, by sub-grouping European firms into the countries in which their headquarters are located, it appears that the market reactions vary across the continent. Swedish stocks, for example, experience a price decline when being removed from the Global 100, suggesting a positive CSR-CFP relationship. On a global scale, also Canadian firms are significantly punished when taken off the list.The sparse significant effects on the financial value of a firm from engaging in substantial CSR efforts have implications for all relevant stakeholders, since it further motivates the debate on therole of the firm and to what extend there exists an optimal level of CSR. Furthermore, this thesis is one of the first to study the CSR-CFP relationship on a global scale. The study can therefore be viewed as an example of how to overcome the methodological challenges that emerge when applying the event study methodology to multiple countries, which is especially crucial in relation to the global phenomenon of CSR

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2019
Number of pages111
SupervisorsSøren Hvidkjær