The use of stock market data to define a corporate social responsibility measure based on the Choquet integral

Abstract

With the aim of assessing the socially responsible (SR) level of a firm, this paper utilises the Choquet integral to aggregate the various SR dimensions provided by rating agencies into a unique measure. This measure reflects investors’ preferences not only in terms of the importance of each SR component but also in terms of the complementarity or substitutability of the components. We first show how financial intermediaries can define a given investor’s profile and help them choose the appropriate portfolio. Given that the stock market is able to aggregate all the investors’ opinions and preferences more effectively than a panel of experts, we then propose, for the first time, the use of stock market data to elicit the components of the Choquet-based SR measure. Mutual-fund managers can then use this measure to build a portfolio adapted to the average investor’s preferences. Our empirical application on firms rated by Vigeo Eiris identifies three dimensions that investors deem relevant: environment, community involvement and corporate governance. Our results show that the average investor gives higher importance to environment among the three SR dimensions and highly values good SR performance in two of the three dimensions.