۱- Introduction

۲- Related literature and hypotheses development

۳- Data

۴- Results

۵- Conclusion

References

Abstract

We examine whether corporate social responsibility (CSR) is used to signal product quality and whether CSR affects firm value through its positive effect on product market perception. Using a proprietary database, we find that visible CSR, such as environmental and community involvement, positively impacts product market perception, particularly for standardized goods and in competitive industries, and that this impact is more pronounced for product quality attributes. Furthermore, we find that CSR indirectly increases firm value through an improvement in product market perception. We conclude that product market perception is a channel through which CSR creates firm value.

Introduction

“Corporate social responsibility (CSR) occurs when firms engage in activity that appears to advance social agenda beyond that which is required by law.” (Siegel and Vitaliano, 2007). The importance of CSR has been growing in the last few years. In January of 2018, Larry Fink, the CEO of BlackRock, called for the corporate CEOs to think not just about profits, but also about making a “positive contribution to society”. In August of 2019 more than 180 of CEOs pledged that their firms’ purpose was no longer to serve their owners alone, but customers, employees, suppliers and communities, too. Harjoto and Jo (2011) summarize the existing theories as to why firms undertake CSR and argue that one of the ways firms use CSR is to signal product quality. Such signals deal with adverse selection arising from information asymmetry about product quality (Kirmani and Rao, 2000). As a result, while CSR is costly, it has strategic implications and is a source of competitive advantage for companies across different industries (Baron, 2001; McWilliams et al., 2006; Porter and Kramer, 2006). However, the literature on the empirical relationship between CSR and firm value is inconclusive, with many of the studies showing a positive impact of CSR on firm value, but some providing evidence in the opposite direction.