Corporate social responsibility, business group affiliation and shareholder wealth: evidence from an emerging market

Abstract

PurposeThis paper aims to examine the relationship between corporate social responsibility (CSR) and shareholder wealth arising from announcement returns of security issuance from a frontier market. It also explores the role of business group affiliation (BGA) on this relationship.Design/methodology/approachThe study uses short-term scenarios to examine the link between CSR and shareholder wealth using the event study methodology which helps us mitigate the reverse causality problems related to studies of the relationship between CSR and firm value. Abnormal returns surrounding the security issue announcements were generated using the market model.FindingsThis paper finds that security issuers with high CSR scores are associated with higher shareholder value. However, this paper finds that CSR activities of security issuers with BGA are value-destroying which is consistent with the agency perspective of CSR.Research limitations/implicationsThis study is limited to only one nascent market, namely the Colombo Stock Exchange.Originality/valueThis study documents that CSR and BGA are important determinants, among others, of stock price reactions to security offerings in emerging markets.