Hi Sandra:
I, along with my two co-authors, completed a study on the share price impact of companies that are added to or deleted from the Calvert Social Index. Although also not the primary focus of our paper, we found that firms added to a social index have higher market-adjusted returns and more positive changes in operating performance in the year prior to the index change than their deleted peers and we hypothesize that this is because the "positive" financial impact of CSR has already been incorporated into the share price in advance of the addition. This explanation is consistent with and helps explain our main finding - that short-term firm valuation is unaffected by additions to the index, but that deletions from the index result in negative abnormal returns in the share value of firms during the period immediately following those deletions. These two findings, supplemented by additional analysis, point to an information asymmetry explanation for the differential effects of additions versus deletions resulting from the level surprise associated with the announcement. If firms have improving social performance, they are likely to let others know of their improved social behavior. If this improvement is clear to investors prior to the announcement of an addition, the announcement might not come as a surprise and would not offer investors much additional information. Firms would be more likely to hide deteriorating social behavior and thus the announcement of removal from a social index might have more impact on investors as it may be less expected.
The paper is currently under second round review and we are hopeful it will be out within a year or so. I include an abstract below and temporary link the complete paper.
Best regards,
Jonathan
Does the Market Respond to an Institutional Endorsement of Social Responsibility?
The Case of Additions to and Deletions from the Calvert Social Index
ABSTRACT
Drawing on institutional theory and emerging views of the importance of reputation and legitimacy to corporate strategy, we extend research on the influence of corporate social performance on financial performance by investigating whether institutional endorsement (or repudiation) of corporate responsibility affects shareholder wealth. We test our hypotheses by assessing whether additions to and deletions from the Calvert Social Index affect market valuations of firms. We find that short-term firm valuation is unaffected by additions to the index, but that deletions from the index result in negative abnormal returns in the share value of firms during the period immediately following those deletions. We also find that firms that are added to a social index have higher market-adjusted returns and more positive changes in operating performance in the year prior to the index change than their deleted peers and that the magnitude of the announcement day reaction to additions to and deletions from the index is inversely related to the amount of information surrounding the event. We suggest that these findings highlight the legitimacy-conferring role of expert bodies and the potential impact of information asymmetry surrounding positive versus negative information on the market reactions once that asymmetry is cleared.
http://www62.homepage.villanova.edu/jonathan.doh/CSR.doc
-----Original Message-----
From: Organizations and the Natural Environment Discussion [mailto:
ONE-L@AOMLISTS.pace.edu] On Behalf Of Donald Siegel
Sent: Friday, August 17, 2007 7:19 AM
To:
ONE-L@AOMLISTS.pace.edu
Subject: Re: reference
Hi Sandra;
Although not the primary goal of our paper (which was to show
that the propensity of firms to be socially responsible
depends on the type of good they are selling-search,
experience, or credence), we confirmed that result in our
recent JEMS paper:
Siegel, Donald S. and Donald Vitaliano (2007) "An Empirical
Analysis of the Strategic Use of Corporate Social
Responsibility," Journal of Economics and Management Strategy,
Vol. 16, No. 3, pp. 773-792.
You might find something else in the rest of that issue (David
Baron's special issue of JEMS on "Nonmarket Strategy and
Social Responsibility"). On the investor issue, I believe Amir
Barnea at U-Texas has found something like that
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=686606
I believe that the issue of information asymmetry is very
important in the context of CSR.
Best regards,
Don
---- Original message ----
>Date: Thu, 16 Aug 2007 21:06:52 -0400
>From: Sandra Rothenberg <
srothenberg@COB.RIT.EDU>
>Subject: reference
>To:
ONE-L@AOMLISTS.pace.edu
>
>Is there any evidence that good social performance "signals"
either
>consumers and/or investors that the firm is performing well
financially?
>Any citations would be appreciated!
>Thanks
>
>********************
>Sandra Rothenberg
>Associate Professor
>Rochester Institute of Technology
>E. Philip Saunders College of Business
>108 Lomb Memorial Drive
>Rochester, NY 14623
***************************
Dr. Donald Siegel
Professor of Entrepreneurship and Associate Dean
A. Gary Anderson Graduate School of Management
University of California, Riverside
225 Anderson Hall
Riverside, CA 92521
Tel: (760) 834-0593
Tel: (951) 827-4996
Fax: (760) 834-0796
Fax: (951) 827-3970
e-mail:
donalds@ucr.edu
http://www.agsm.ucr.edu/faculty/pages/don.html
http://econpapers.repec.org/RAS/psi32.htm
http://ssrn.com/author=33607
Editor-Journal of Technology Transfer
http://www.springer.com/west/home/business?SGWID=4-40517-70-35751012-detailsPage=journal
http://heckmann.ucr.edu/
***************************