CSR and stock market reaction

Abstract

The aim of this paper is to examine whether investors react towards daily corporate decisions with regards to environmental, social and governance practices. Unlike other literature published in the field of corporate social responsibility, this paper tracks, based on a unique database, daily corporate ESG decisions. By making use of event study methodology this paper gives a glance at the stock market reaction based on abnormal returns. Results show that investors react asymmetrical towards ESG related news. There is no distinct reaction towards positive news, while there is a significant negative reaction towards negative ESG news. Furthermore, there appears to be no significant distinction between the reaction towards companies perceived as socially responsible and companies perceived as socially irresponsible. To conclude, the study results show that corporate social performance and financial performance are not one-to-one related and only a clear negative reaction towards negative ESG events emerges.