The value of corporate social responsibility: evidence from the humidifier disinfectant scandal in Korea

Abstract

ABSTRACT As a quasi-natural experiment, we examine the effects of corporate social responsibility (CSR) on firms’ stock performance amid a corporate scandal closely linked with environmental and social (ES) issues, the humidifier disinfectant scandal in Korea. We find that firms with higher ES ratings, especially those with higher social ratings, outperform firms with lower ES ratings during the product safety scandal. Our estimation shows that one standard deviation increase in a firm’s ES score translates into about 2.4% higher stock returns during the scandal period. Our findings reveal that ES performance is influential over a firm’s stock returns when investors pay high attention to CSR, suggesting that firms’ CSR investments mitigate their nonfinancial risk.