The Informational Relevance of Strategic Corporate Social Responsibility

Proponents of corporate social responsibility (CSR) argue that CSR activities allow firms to improve relationships with key stakeholder groups and gain a competitive advantage over industry rivals. This study examines the impact of additions and deletions in the Domini Social 400 Index due to stakeholder-related CSR activities on the share prices for both announcing firms and rival companies. Results from the event study analysis indicate that CSR additions (deletions) are associated with positive (negative) abnormal returns for the announcement firm. Furthermore, evidence from the intra-industry share price response is consistent with a competitive effect where good (bad) news for the announcement firms is simultaneously perceived as bad (good) news for rival firms. The study highlights the central role of information in linking CSR with financial performance, and provides strategic implications for firm managers