Does the Indian Stock Market encourage Socially Responsible Companies?

Abstract

A paradigm shift has taken place in the conceptual framework of Corporate Responsibility which has led to the emergence of a holistic approach towards Governance, Corporate Social Responsibility and Environmental Accountability. We expect that social responsibility has a distinct and positive effect on the security prices in the stock market. This paper aims at studying the broad trends in the market in terms of ESG, as proxy of socially responsible companies, and NIFTY, as the proxy of general companies, to identify the breaks, if any, and to examine the price discovery process in both the indices, in terms of growth rate. We have identified three periods i.e. pre-crisis, crisis and post-crisis period. We conclude that the growth rate and return is more in ESG index than NIFTY index. Hence, social responsible companies are performing better than general companies both in terms of price discovery and returns, for the whole period. After the crisis the investors had become sensitised to social responsibility and had begun to absorb and internalise the behaviour of socially responsible companies in the price discovery process.