Do capital markets value corporate social responsibility? Evidence from seasoned equity offerings

TY - JOUR

T1 - Do capital markets value corporate social responsibility? Evidence from seasoned equity offerings

AU - Feng, Zhi Yuan

AU - Chen, Carl R.

AU - Tseng, Yen Jung

N1 - Publisher Copyright: © 2018 Elsevier B.V.

PY - 2018/9

Y1 - 2018/9

N2 - We explore whether firms’ corporate social responsibility (CSR) activities provide added value to capital market participants through seasoned equity offerings (SEOs). SEOs represent cleaner exogenous activity alleviating the reverse causality issue plaguing many prior studies examining the relation between firm performance and CSR. Using a large sample of U.S. SEOs, we find high-CSR issuers experience fewer negative market reactions to SEO announcements. We also show ethical issuers have incentive to provide extensive and informative disclosures, which mitigate the degree of information asymmetry, thereby decreasing SEO underpricing. Among CSR categories, we find issuers engaging in community and environmental CSR activities and improving the rights of women and minorities are more effective at reducing SEO negative announcement returns and underpricing. Our findings remain robust after controlling for possible self-selection bias and endogeneity problems. Overall, our findings support the stakeholder value maximization view of stakeholder theory and ethical theory.

AB - We explore whether firms’ corporate social responsibility (CSR) activities provide added value to capital market participants through seasoned equity offerings (SEOs). SEOs represent cleaner exogenous activity alleviating the reverse causality issue plaguing many prior studies examining the relation between firm performance and CSR. Using a large sample of U.S. SEOs, we find high-CSR issuers experience fewer negative market reactions to SEO announcements. We also show ethical issuers have incentive to provide extensive and informative disclosures, which mitigate the degree of information asymmetry, thereby decreasing SEO underpricing. Among CSR categories, we find issuers engaging in community and environmental CSR activities and improving the rights of women and minorities are more effective at reducing SEO negative announcement returns and underpricing. Our findings remain robust after controlling for possible self-selection bias and endogeneity problems. Overall, our findings support the stakeholder value maximization view of stakeholder theory and ethical theory.

KW - Announcement returns

KW - Corporate social responsibility

KW - Seasoned equity offerings

KW - Underpricing

UR - http://www.scopus.com/inward/record.url?scp=85049794285&partnerID=8YFLogxK

U2 - 10.1016/j.jbankfin.2018.06.015

DO - 10.1016/j.jbankfin.2018.06.015

M3 - Article

AN - SCOPUS:85049794285

SN - 0378-4266

VL - 94

SP - 54

EP - 74

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

ER -