Corporate Social Responsibility and Seasoned Equity Offerings

We examine whether corporate social responsibility (CSR) creates value for seasoned equity issuers. Using a sample of SEOs made by U.S. companies between 2004 and 2013, we find that stock price reactions are less negative for SEO announcements by firms with better CSR performance. Our event study results are consistent with high CSR scores indicating lower agency costs of free cash flow. Inconsistent with this interpretation, however, further analysis shows that issuers with high CSR scores tend to increase their cash holdings and working capital after their SEOs, invest less in real assets, and have worse post-SEO operating performance than issuers with low CSR scores. Together, our findings indicate that high CSR scores mislead shareholders into attributing value-increasing motives to seasoned equity issues. Further analysis suggests that the market is not fooled repeatedly, however, as the positive impact of CSR scores on stock price reactions disappears when firms return to the capital market to make subsequent SEOs