The effect of corporate social responsibility (CSR) on shareholder value: evidence from the 9/11 terrorist attack

Abstract

Purpose This paper aims to explore the effect of corporate social responsibility (CSR) on shareholder value using the stock market reactions to a terrorist attack. This paper exploits the September 11 terrorist attack as an unanticipated exogenous shock that reduced shareholder wealth suddenly and unexpectedly. Based on the risk-mitigation hypothesis, the argument is that more socially responsible firms should suffer less negative market reactions. Design/methodology/approach This paper uses the standard event study methodology to estimate the stock market reactions to the 9/11 terrorist attack. Then, the study executes a cross-section analysis to determine whether CSR offers any protection in the presence of a sudden negative shock. Additional analysis includes propensity score matching, instrumental-variable analysis and using Oster’s (2019) method for testing coefficient stability. Findings The results show that the negative stock market reactions to the shock are significantly alleviated for firms with strong social responsibility. A rise in CSR by one standard deviation improves the market reactions by 22.56% of the average decline. This is consistent with the prediction of the risk mitigation hypothesis, where CSR spawns moral capital or goodwill that functions as an insurance-like defense in case of an adverse event. Research limitations/implications The study focuses on short-term market reactions because this method is more likely to show a causal effect. Future research may investigate long-term effects. Originality/value While prior research has investigated the effect of CSR on firm value, it has been challenging to establish causality. The approach is more likely to show causality as it is based on a sudden and unanticipated negative shock. This paper also uses several methods to reduce endogeneity, making it more likely that the results show causality, rather than merely an association.

The impact of ownership structure on corporate social responsibility: the moderating role of financial performance

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Does financial performance moderate the relationship between board attributes and corporate social responsibility in French firms?

“…Also, they are likely to issue more voluntary disclosures because they receive more attention from the public and thus are under higher pressure to disclose more information about CSR activities to legitimize their activities (Gavana et al, 2017;El-Bassiouny and Letmathe, 2018;Orazalin, 2019). Firm leverage is the second control variable that can affect CSR (Paul Assenga et al, 2018;Ongsakul et al, 2020). It was assessed as total debt divided by total assets.…”

Does board gender diversity improve the welfare of lesbian, gay, bisexual, and transgender employees?

“…Nevertheless, addressing stakeholders' concerns has a clear link to improved reputation (Bear et al, 2010), relative competitive advantage (McGuinness et al, 2017), and higher return on assets and return on sales (Liu et al, 2014). Furthermore, studies show that socially responsible firms experienced a less negative shock in the equity market following the 9/11 terrorist attack (Ongsakul et al, 2021) and lower stock price crash risk (Kim et al, 2014), all of which indicate a positive association between social performance and sustainable financial performance.…”