Fu, Shihe and Shan, Liwei (2009): Corporate equality and equity prices: Doing well while doing good?
Download (577kB) | Preview
Two competing hypotheses, value enhancing and value discounting, state that implementing socially responsible corporate policies can have positive or negative effects on firm value. This paper tests how a specific type of social responsibility–corporate equality–affects firm value. Corporate equality is measured by the corporate equality index (CEI). This index quantifies how companies treat their gay, lesbian, bisexual, and transgender employees, consumers, and investors. Using a sample of CEI-rated, publicly traded firms in the U.S., we find that, between 2002 and 2006, firms with a higher degree of corporate equality have higher stock returns and higher market valuation (Q). We provide suggestive, causal evidence that corporate equality enhances firm value through better performance in product markets and labor markets: Firms with a higher degree of corporate equality also tend to have larger sales, higher profit margins, higher employee productivity, and attract more employees. These results are robust to the inclusion of unobserved firm-heterogeneities. Overall, our results support the value-enhancing effects of corporate social responsibility.
|Item Type:||MPRA Paper|
|Original Title:||Corporate equality and equity prices: Doing well while doing good?|
|English Title:||Corporate equality and equity prices: Doing well while doing good?|
|Keywords:||Corporate equality; social responsibility; socially responsible investment; stock returns; performance|
|Subjects:||M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M14 - Corporate Culture ; Diversity ; Social Responsibility
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates
J - Labor and Demographic Economics > J7 - Labor Discrimination > J70 - General
|Depositing User:||Shihe Fu|
|Date Deposited:||24. Mar 2009 05:10|
|Last Modified:||23. Feb 2015 13:20|
Badgett, M. V. L., 1995, The wage effects of sexual orientation discrimination, Industrial and Labor Relation Review 48, 726-739.
Baker, D., 1997, A history in ads: The growth of the gay and lesbian market. In Gluckman, A., and Reed, B., (Eds.), Homo Economics, Routledge, New York, pp.12-20.
Bauer, R., Koedijk, K., Otten, R., 2005, International evidence on ethical mutual fund performance and investment style, Journal of Banking and Finance 29, 1751-1767.
Bello, Z., 2005, Socially responsible investing and portfolio diversification, Journal of Financial Research 28, 41-57.
Black, D., Gates, G., Sanders, S., Taylor, L., 2000, Demographics of the gay and lesbian population in the United States: Evidence from available systematic data sources, Demography 37, 139-154.
Blandford, J., 2003, The nexus of sexual orientation and gender in the determination of earnings, Industrial and Labor Relations Review 56, 622-642.
Carhart, M., 1997, On persistence in mutual fund performance, The Journal of Finance 52, 41-57.
Fama, E., French, K. 1992. The cross-section of expected stock returns, Journal of Finance. 427-465.
Fama, E., French, K. 1993. Common risk factors in the returns on stocks and bonds”. Journal of Financial Economics 33, 3-56.
Fama, E., French, K. 1997. Industry costs of equity. Journal of Financial Economics, 153-193.
Fama, E., MacBeth, J.D., 1973. Risk, return, and equilibrium: empirical test. Journal of Political Economy 81, 607-636.
Florida, R., 2005, Cities and the creative class, Routledge, New York.
Fu, S., 2007, Sexual orientation and neighborhood quality: Do same-sex couples make better communities? Working Paper.
Geczy, C., Stambaugh, R., Levin, D., 2005, Investing in socially responsible mutual funds, Working Paper, University of Pennsylvania, Wharton School.
Goldreyer, E., Diltz, D., 1999, The performance of socially responsible mutual funds: Incorporating sociopolitical information in portfolio selection, Managerial Finance 25, 23-36.
Gompers, P., Ishii, J., Metrick, A., 2003, Corporate governance and equity price, Quarterly Journal of Economics 118, 107-155.
Hamilton, S., Jo, H., Statman, M., 1993, Doing well while doing good? The investment performance of socially responsible mutual funds, Financial Analysis Journal, November-December, 62-65.
Heal, G., 2005, Corporate social responsibility: An economic and financial framework, The Geneva Papers on Risk and Insurance — Issues and Practice 30, 387-409.
Hong, H., Kacperczyk, M., 2009, The price of sin: The effects of social norms on markets, Journal of Financial Economics, forthcoming.
Hou, K., Robinson, D., 2006. Industry concentration and average stock returns, Journal of Finance, 1927-1956.
Jensen, M., 1986. Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers, American Economic Review, vol. 76(2), p323-329.
Kempf, A., Osthoff, P., 2007, The effect of socially responsible investing on portfolio performance, European Financial Management 13, 908-922.
Kerr, W., Fu, S., 2008, The survey of industrial R&D-patent database link project, Journal of Technology Transfer 33, 173-186.
Lev, B., Petrovits, C., Radhakrishnan, S., 2006, Is doing good good for you? Yes, charitable contributions enhance revenue growth, Working Paper, New York University, Stern School of Business.
Mallin, C., Saadouni, B., Briston, R., 1995, The financial performance of ethical investment funds, Journal of Business Finance and Accounting 22, 483-496.
Margolis, J., Elfenbein, H., Walsh, J., 2007, Does it pay to be good? A meta-analysis and redirection of research on the relationship between corporate social and financial performance, Working Paper, Harvard Business School.
McWilliams, A., Siegel, D., 2000, Corporate social responsibility and financial performance: Correlation or Misspecification? Strategic Management Journal 21, 603-608.
Renneboog, L., Horst, J. T., Zhang, C., 2008, The price of ethics and stakeholder governance: The performance of socially responsible mutual funds, Journal of Corporate Finance 14, 302-322.
Sauer, D., 1997, The impact of social-responsibility screens on investment performance: Evidence from the Domini 400 social index and Domini equity mutual fund, Review of Financial Economics 6, 137-149.
Statman, M., 2000, Socially responsible mutual funds, Financial Analysts Journal, May/June, 30-39.
Statman, M., 2006, Socially responsible indexes, Journal of Portfolio Management, Spring, 100-109
Statman, M., 2007, Socially responsible investment, Working Paper, Santa Clara University.
Waddock, S., Graves, S., 1997, The corporate social performance-financial performance link, Strategic Management Journal 18, 303-319.