Impact Of Corporate Social Responsibility On Stock Market Performance

With the improvement of the global economic development level,the concept of corporate social responsibility(CSR)has been widely disseminated and concerned around the world.In the new era,the formulation and arrangement of various policies,such as targeted poverty alleviation,the development of circular economy,the proposal of "double carbon" goals,and the revision of the Environmental Protection Law,are all related to the issue of corporate social responsibility,which not only shows the government’s high attention to the fulfillment of corporate social responsibility but also shows that social responsibility is an important driving force and inevitable requirement for enterprises to achieve healthy and sustainable development.However,at this stage,due to the lack of social responsibilities such as environmental pollution,food safety,and medical safety,the stock prices of the companies involved have fluctuated sharply,and even crashes have occurred from time to time,which has seriously affected the healthy and stable development of the capital market.These phenomena have also aroused widespread concern from all walks of life,including the media,government departments,and market investors.In the context of China’s economy entering new normal and global economic shocks,the attitude and behavior of enterprises to undertake social responsibility has gradually become an important factor for stakeholders to consider the potential risks and benefits of enterprises.Therefore,it has important theoretical value and practical significance to investigate the impact of corporate social responsibility on stock market performance.Since the 1970s,whether corporate social responsibility performance can create value for enterprises has been an important issue in the field of corporate social responsibility.Existing domestic and international studies have discussed this issue from various value perspectives,but have not yet reached a unanimous conclusion.Moreover,existing studies have mainly analyzed the economic consequences of corporate social responsibility from a single level of stock market performance,but less from the overall perspective of stock market performance to explore the relationship between CSR and stock market performance.Because of this,based on stakeholder theory,resource dependence theory,signaling theory,and risk management theory,this paper has carried out four aspects from the three dimensions of stock market performance,namely stock market reaction(first-order moments),stock idiosyncratic risk(second-order moments)and stock price crash risk(third-order moments).First,this paper develops an entrepreneurial decision-making model to analyze the impact of entrepreneurs’ social responsibility on stock market performance.The model’s hypothesis:(1)Entrepreneurs decide to consume and invest to maximize their utility under budget constraints.(2)Entrepreneurs use labor and capital for production.Where labor comes from the labor market,the cost is wages,and capital comes from the entrepreneur’s investment.This paper assumes that investment is inefficient and that investment efficiency is a function of corporate social responsibility.(3)Entrepreneurs have borrowing behavior and are constrained by financing when borrowing.The bank will lend according to the entrepreneur’s assets,and the proportion of the loan amount in the assets reflects the degree of financing constraints.Second,corporate social responsibility and stock returns.This paper contrasts the stock market responses to corporate philanthropic giving during the COVID-19 epidemic period and the regular period.This part of the study is divided into three parts:(1)Based on the manually compiled data on corporate philanthropic giving during COVID-19 epidemic period and the regular period,this paper uses the event study method to test and identify the stock market’s reaction to corporate philanthropic giving during a specific period.(2)Multiple linear regression analysis is applied to explore whether the level of corporate philanthropic giving induces a differential stock market response.(3)Further verify whether stock market responses to corporate philanthropic giving are influenced by the nature of property rights,political affiliation,degree of epidemic shock,socially responsible industry sensitivity,and timeliness of giving,and discuss their heterogeneity at these five levels.Third,corporate social responsibility and stock idiosyncratic risk.Based on the data of Chinese A-share non-financial listed companies from 2010-2019,this paper analyzes the internal relationship and transmission mechanism between corporate social responsibility and firm’s stock idiosyncratic risk.This paper also deeply discusses whether the risk inhibition effect of corporate social responsibility is significantly different due to the impact of economic policy uncertainty,information transparency,equity restriction,and accounting conservatism.Fourth,corporate social responsibility and stock price crash risk.From the perspective of stock price crash risk,we explore whether CSR will enhance information transparency and mitigate agency conflicts to maintain market stability,reflecting the "conflict-resolution view",or will facilitate management’s pursuit of private interests or cover up corporate misconduct,resulting in over-investment and exacerbating the stock price crash risk,reflecting the "overinvestment view".This part of the study is divided into two parts:(1)Examine the impact of corporate social responsibility on the stock price crash risk and its mechanism.(2)Discuss the heterogeneity in terms of four dimensions: the nature of property rights,the degree of marketization,the level of corporate governance,and the quality of internal control.This paper finds that:First,by deriving the theoretical model,it is found that when the improvement of current investment efficiency brought by corporate social responsibility in t+1 period is greater than the discount of the sum of the change in investment efficiency and the change in financing constraint brought by corporate social responsibility in the future period,the increase of corporate social responsibility will lead to the increase of stock return;The increase of corporate social responsibility level will reduce the volatility of stock returns.Combined with the fact that investment efficiency is an increasing function of CSR and financing constraint is a decreasing function of CSR,corporate social responsibility can affect stock market performance by influencing the investment efficiency and financing constraint of enterprises.Second,compared with the donation companies during the regular period,the philanthropic giving behavior of enterprises during the COVID-19 epidemic crisis can cause a significant positive market response during the event window,and the level of philanthropic giving of enterprises is significantly positively related to the cumulative abnormal returns during the event window.This suggests that when enterprises and the overall economy encounter negative shocks,the effects of philanthropic giving in mitigating the risk of falling stock prices and increasing market value are more obvious than in the regular period.The nature of property rights,the political ties,the impact degree of the COVID-19 epidemic,the sensitivity of the social responsible industry,and the timing of donations are important situational factors that affect the economic consequences of corporate philanthropic giving.Private firms,firms without political ties,firms in regions that are more affected by the epidemic,firms in socially responsible industries,and firms with more timely donations have higher market values.Third,corporate social responsibility is negatively correlated with stock idiosyncratic risk.This shows that corporate social responsibility can significantly inhibit the idiosyncratic volatility of stock prices,and there is a “risk inhibition effect”.This inhibition effect is more obvious in the firms with higher information transparency,higher equity restriction,higher accounting conservatism,and lower economic policy uncertainty.The mechanism analysis shows that corporate social responsibility can inhibit stock idiosyncratic risk by alleviating financing constraints and improving production efficiency.Fourth,corporate social responsibility can reduce stock price crash risk,and can play the role of market stability,which reflects the idea of the “conflict-resolution view”.The mechanism analysis shows that corporate social responsibility can effectively reduce inefficient investment and improve the analysts’ forecast accuracy,alleviate the agency conflict problem caused by information asymmetry,and thus reduce the risk of stock price crash risk.The heterogeneity analysis further verifies the perspective of the conflict resolution.In private enterprises,enterprises located in regions with higher marketization,enterprises with a higher level of corporate governance and a higher quality of internal control,there are usually lower inefficient investments and higher analysts’ forecast accuracy.Therefore,the market stabilization effect of corporate social responsibility will be more obvious.The possible innovations of this paper are as follows.First,it unveils the "black box" of the impact of CSR on stock market performance from different dimensions of stock market performance,providing empirical evidence from emerging market countries for exploring the economic consequences of CSR.Most of the existing research in the field of corporate social responsibility focuses on western developed market countries,forming a relatively mature theoretical system of social responsibility.However,due to the heterogeneity of political,economic,and cultural backgrounds in different countries,the social responsibility theories of western developed market countries may not be fully applicable to or guide the social responsibility practices of enterprises in emerging market countries.Based on China’s capital market environment,this paper builds a theoretical research framework on the impact of CSR on stock market performance,and examines the intrinsic linkage between the two and its mechanism through empirical analysis,in order to provide empirical evidence from emerging market countries on whether CSR can play a positive effect and enrich the research on CSR in emerging market countries.Second,this paper explores the relationship between CSR and stock market performance from the perspective of multidimensional situational factors,expanding and deepening the research scope in the field of CSR and stock market performance.The existing literature on the relationship between CSR and stock market performance has not reached a consistent conclusion.The possible reason is that some important situational factors are ignored.This paper distinguishes the degree of marketization,the nature of enterprises,corporate governance mechanism,industry nature,and other multidimensional situational factors.This paper also examines the governance effect of corporate social responsibility under different situational factors from different dimensions of stock market performance.From a new perspective,it supplements the content of the impact of CSR on stock market performance and provides a deeper consideration for evaluating the relationship between the two.The conclusions of this paper have strong policy implications.First,for enterprises,this paper is based on China’s capital market environment,provides new ideas to motivate enterprises to take the initiative to undertake social responsibility and achieve sustainable development by exploring the potential path of effective enterprise stock market performance.It urges enterprises to view CSR from the perspective of long-term strategic development,improve their social responsibility awareness and management,and provide useful references for enterprises to achieve win-win results in terms of economic and social benefits.Second,for regulators,this paper provides a decision-making basis for the regulators to further improve the policies and regulations related to corporate social responsibility.It can provide policy reference for regulators to further clarify the impact of CSR on the capital market,evaluate and improve the CSR information disclosure system,performance assessment mechanism,and reward and punishment system.This helps to create a good institutional and information environment for the business development of market players,and promote the stable and orderly development of the capital market.Third,for investors and creditors,this paper provides a certain reference basis for their decision-making.It helps investors and creditors to gain an in-depth understanding of the relationship between CSR and stock market performance and provides them with certain reference bases for comprehensively assessing the operating conditions of enterprises,avoiding risks,and making scientific and reasonable decisions.In addition,this paper can also promote the healthy and sustainable development of enterprises by further enhancing investors’ awareness of socially responsible investment and forming reasonable feedback on CSR practices.