How Firm Performance Moderates the Effect of Changes in Status on Investor Perceptions: Additions and Deletions by the Dow Jones Sustainability Index

Abstract

Research has long studied how corporate social responsibility (CSR) activities affect financial market evaluations of firm value, but we know little about how investors use new information about changes in CSR to update their assessments of firm value. This paper argues that firm performance moderates the degree to which investors respond to new information about CSR activity. Using a large-scale financial event study of additions and deletions by the Dow Jones Sustainability Index (DJSI), we show that firms with strong financial performance gain fewer benefits for being recognized as CSR leaders, while bearing fewer penalties for losing recognition as CSR leaders. Intriguingly, analyst expectations of future performance have stronger moderating impact than historical accounting performance.