TY - JOUR
T1 - The effect of corporate social responsibility (CSR) on shareholder value
T2 - evidence from the 9/11 terrorist attack
AU - Ongsakul, Viput
AU - Jiraporn, Pornsit
AU - Tong, Shenghui
AU - Treepongkaruna, Sirimon
PY - 2021/2/8
Y1 - 2021/2/8
N2 - 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.
AB - 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.
KW - Corporate social responsibility
KW - CSR
KW - Endogeniety
KW - Event study
KW - shareholder value
KW - Shareholder wealth
UR - http://www.scopus.com/inward/record.url?scp=85098239456&partnerID=8YFLogxK
U2 - 10.1108/ARJ-10-2019-0204
DO - 10.1108/ARJ-10-2019-0204
M3 - Article
AN - SCOPUS:85098239456
SN - 1030-9616
VL - 34
SP - 91
EP - 105
JO - Accounting Research Journal
JF - Accounting Research Journal
IS - 1
ER -