Corporate Social Responsibility and Firm Value: Disaggregating the Effects on Cash Flow, Risk and Growth
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This paper investigates the effect of corporate social responsibility (CSR) on firm value and seeks to identify the source of that value, by disaggregating the effects on forecasted profitability, long-term growth and the cost of capital. The study explores the possible risk (reducing) effects of CSR and their implications for financial measures of performance. For individual dimensions of CSR, in general strengths are positively valued and concerns are negatively valued, although the effect is not universal across all dimensions of CSR. We show that these valuation effects are principally driven by CSR performance associated with better long run growth prospects, with an additional minor contribution made by a lower cost of equity capital.
KeywordsCorporate social responsibility Firm value Cost of capital Risk Growth
The authors gratefully acknowledge the comments of Louis Ederington, Alex Edmans, Chitrou Fernando, Scott Linn, Vahap Uysal and Pradeep Yadav, together with seminar participants at the 2011 PRI Conference in Sigtuna, Sweden, the University of Bristol, the University of Oklahoma (Price College of Business), the University of Piraeus and the University of Swansea. We are also grateful to XiaoJuan Yan, PhD student at the University of Exeter, for her help in assembling the data for this paper.
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