Empirical investigations of the relationship between corporate social and financial performance

This thesis attempts to make original contributions on the empirical relationship between corporate social responsibility and firm financial performance in a variety of ways. First, I investigate the wealth-protective effects of socially responsible firm behaviour by examining its association with equity risk for an extensive panel data sample of S&P 500 companies. Special consideration is given to downside risk and investor utility. The main findings are that corporate social responsibility is negatively but weakly related to systematic firm risk and corporate social irresponsibility is positively and strongly related to financial risk. However, the risk-return trade- off appears to be such that no clear utility gain or loss can be realized by investing in firms characterised by specific levels of social and environmental performance. Overall volatility conditions are shown to play a moderating role in the nature and strength of the corporate social performance-risk relationship. I then extend the research framework to the corporate bond market and provide evidence of a negative link between corporate social performance and credit risk as well as corporate spreads. Additional analysis shows that this relationship is more pronounced in recent years and for bonds with higher maturities and either high or very low ratings. Although the moderating nature of volatility conditions found for stocks is not repeated in the bond market, the results are robust across industrial categorisations, despite the differences in their risk profiles. The final empirical study explores the impact that positive social corporate actions have on the financial effects of negative/harmful social corporate actions and vice versa. When considering the phenomenon at the firm level using multiple regression analysis, no statistically significant link is detected. However, when pools and portfolios of firms are constructed, a U -shaped relationship becomes noticeable, with firms that engage solely in corporate socially responsible or socially irresponsible behaviour outperforming those engaging in both, especially in the case of the diversity and employee relations dimensions where all possible assessments of financial performance point towards a curvilinear link. iii.EThOS - Electronic Theses Online ServiceGBUnited Kingdo