Abstract
There has been significant interest and debate on the impact that a firm’s investments in corporate social responsibility (CSR) practices and initiatives have on its market value. In this paper, we target an area that is relatively under-researched: the relevance of CSR practices and initiatives for firms in the emerging economic region of mainland China and Hong Kong, where market development and the institutional environment lag that of developed economies. Using independent CSR assessment data on a sample of large mainland Chinese and Hong Kong firms listed on the Hong Kong Stock Exchange, we evaluate the impact of six CSR dimensions on the firms’ adjusted stock market value over a three-year period. We found support for the influence of only two of the six dimensions considered, namely, the CSR practices and initiatives focused on community investment through philanthropy and, to a lesser extent, the CSR practices and initiatives focused on enhancing workplace quality, to be significant predictors of firm value. This suggests that social and people-centric dimensions of CSR are more relevant than technical and process-centric dimensions of CSR for mainland Chinese and Hong Kong firms. Furthermore, we found support for the hypothesis that the impact of CSR practices and initiatives on firm value follows an inverted U-shaped relationship over time, suggesting that the effect of these initiatives on firm value steadily increases during the initial years after their adoption to reach a maximum and then gradually fades away in subsequent years. To this end, this study advances our knowledge of the specific CSR dimensions that contribute to firm value and their relevance for Chinese and Hong Kong firms.
Highlights
Corporate social responsibility (CSR) has gained significant prominence in the business world over the past few decades
While our results suggest that only two of the six CSR dimensions are significantly related to firm value, it could be that the relationships between the remaining four dimensions of CSR and firm value may be more complex than that which has been captured in this study
In this study, using independent CSR assessment data on a sample of large mainland China and Hong Kong firms, we empirically investigate how CSR initiatives impact firm value
Summary
Corporate social responsibility (CSR) has gained significant prominence in the business world over the past few decades. Many companies are investing ambitiously in CSR programs and are aiming to integrate CSR into all aspects of their businesses. Given the importance and ubiquity of CSR, a question that has prompted great interest from both academic researchers and market practitioners is whether such investments in CSR activities create value for the firm’s shareholders or lower firm value due to their focus on other stakeholders. Despite voluminous empirical studies over the past four decades see [2,3,4] for reviews, there remains considerable debate and inconclusiveness about this question. While a number of meta-analytic reviews suggest that there is a positive (albeit small) link between the implementation of CSR practices and firm value [3], doubts continue to persist due to the impact of positive publication bias [5]; sample size and methodological deficiencies used in studies that have investigated this link [6,7]; the moderating effect of environmental factors such as the maturity of institutional systems and the efficiency of market mechanisms present in different countries [7] and the variability in the institutional usage of CSR (instrumental, political and isomorphic) by firms [8]
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