The Impact of CSR on Financial Performance: An event study of abnormal stock returns of Swedish companies as a reaction to the release of the Folksam Index of Corporate Social Responsibility

Anna Linnea Helena Bråtenius & Emelie Josefin Melin

Student thesis: Master thesis


The interest for and engagement in corporate social responsibility (CSR) has increased among both investors and companies, despite the uncertainty related to how CSR engagement creates financial value. As a result, the relationship between CSR and financial performance has been subject to several studies, which have shown conflicting results. Little evidence support that CSR and financial performance are directly related. This study aims to investigate whether CSR engagement has a direct impact on financial performance in the form of stock returns. This is examined by using a specific case, namely the release of Folksam’s Index of Corporate Social Responsibility report, and is conducted through an event study. The time frame covered is the years of 2006 to 2009, 2011 and 2013, in which the report has been released. The publisher of the report, Folksam, is one of Sweden’s largest investmentand insurance companies, and the report assesses the CSR engagement within environmental and human rights, for all companies on OMX Stockholm stock exchange, which therefore form the total population examined. To identify the reactions of investors on the report release, three samples are chosen from the total population. These are the 31 top-ranked companies, the 31 bottomranked companies, as well as those companies identified as “zero-performers”, defined as those who received no points at all in the ranking, implying no CSR engagement. The event study methodology used follows a classical approach, by using the market model for estimation of normal and abnormal returns. The estimation window covers the 126 days prior to the event window, and the event window covers the day before the event to the third day after the event day, i.e. day -1 to 3. Thereafter, cumulative abnormal returns, as well as abnormal returns, are calculated to assess the potential impact of the report on stock returns. Overall, the results show that a top ranking does not have an effect on stock returns, whereas a bottom ranking has a negative impact. The negative impact has been consistent over all years, and has increased over time. This indicates that even though top-performers within the area of CSR are not rewarded, companies are still punished for poor CSR performance. Moreover, the results show that the number of companies not engaging in CSR at all has decreased. In addition, four sub-hypotheses are tested to further uncover potential variables that affect the reaction among investors. These aim to examine 1) whether the report has had a larger impact in later years, 2) whether investors’ priorities were different pre-, during-, or post the financial crisis, as well as whether whether investors react differently to top- or bottom rankings when only considering 3) operationally risky and 4) large sized companies, respectively. These results confirm the main hypothesis results, and further support that the interest in CSR has increased over time.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2015
Number of pages139