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Standing Out from the Crowd via CSR Engagement: Evidence from Non-Fundamental-Driven Price Pressure

Published online by Cambridge University Press:  11 May 2023

Lei Gao Open the ORCID record for Lei Gao [Opens in a new window] ,
Jie (Jack) He Open the ORCID record for Jie (Jack) He [Opens in a new window]  and
Juan (Julie) Wu
Lei Gao
Affiliation:
George Mason University, School of Business lgao9@gmu.edu
Jie (Jack) He*
Affiliation:
University of Georgia Terry, College of Business
Juan (Julie) Wu
Affiliation:
University of Nebraska – Lincoln, College of Business juliewu@unl.edu
*
jiehe@uga.edu (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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We test the signaling view of corporate social responsibility (CSR) engagement using two complementary quasi-natural experiments that impose exogenous negative pressure on stock prices. Firms under such adverse price pressure increase CSR activities compared to otherwise similar firms. This effect concentrates among firms with stronger signaling incentives, namely, those facing greater information asymmetry, more product market competition, higher shareholder litigation risk, and higher stock price crash risk. Firms under the exogenous negative price pressure mainly improve CSR strengths, including costly environmental investments. We also find that CSR engagement attracts socially responsible investors and lowers the cost of capital for signaling firms.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 1 , February 2024 , pp. 39 - 67
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee, Jie Cao, Jon Garfinkel, Stu Gillan, Itay Goldstein, Jarrad Harford (the editor), Rawley Heimer, Michael Hertzel, Sara Holland, John Hund, Hoje Jo, Hao Liang, Sébastien Michenaud, Harold Mulherin, Brad Paye, Tao Shu, Tom Smith, James Weston, Eric Yeung, Ming Yuan, Hao Zhang, Jingran Zhao, Shan Zhao, conference participants at the FARS 2016 Midyear Conference, the 2016 Midwest Finance Association Meetings, the 2016 Financial Management Association Meetings, the 2017 Conference on Financial Economics and Accounting, the 2018 Financial Management Association Asia/Pacific Meetings (Best Paper Finalist), and the 2019 European Finance Association Meetings, and seminar participants at Central University of Finance and Economics, George Mason University, Iowa State University, Macquarie University, Peking University, Renmin University, Tsinghua University, University of Georgia, University of International Business and Economics, University of Iowa, University of Kansas, University of Tasmania, and Wilfrid Laurier University for valuable comments. We are solely responsible for any remaining errors.

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