Cause-Related Marketing and Shareholder Value: An Event Study Analysis (Extended Abstract)

Abstract

Over the past few decades, the corporation’s social responsibility (CSR) has been thrust into the limelight as an expected business practice. CSR is defined as “the policy and practice of a corporation’s social involvement over and beyond its legal obligations for the benefit of the society at large (Enderle and Travis 1998). Although the increased focus of this practice was the result of financial scandals, investor losses, and corporate reputational damage, the social norms ultimately levied on corporations make not engaging in CSR behaviors extremely risky. However, conventional economic theory posits that executives are required to make decisions that maximize the wealth of their shareholders by making decisions that maximize the present value of the firm’s future cash flows (Friedman 1962; Copeland et al. 1994). In other words, executives have a fiduciary responsibility to their shareholders every time they make an investment, and social investments are no exception. They must be justified by an extensive process of reasoning as having a realistic chance of manifesting a long-term economic gain (Davis 1960).