Using news articles covering firm‟s corporate social responsibility (CSR) activities, we find that publicized CSR activities are positively associated with shareholder value and improved future operating performance. Furthermore, we find that media coverage on CSR engagements with local impact on companies‟ communities and employees, rather than those with broader social impact on the general public, is the main driver in explaining higher shareholder value and operating performance. We also implement a two-stage least-squares regression (2SLS) and propensity score matching to establish a causal link between publicized local CSR activities and shareholder value. Our evidence is consistent with the notion that shareholders put positive value on locally-oriented CSR when it is also complemented with high level of stakeholder awareness.

Introduction

Corporate social responsibility (CSR) has become an important issue for corporations, with over 80% of publicly-traded companies reporting CSR activities online (PriceWaterhouseCooper, 2010). Despite its growing importance, there is little consensus among scholars concerning the motivation for CSR and its effect on shareholder value (e.g., Margolis, Elfenbein, and Walsh, 2007). A traditional view has been that CSR reflects managerial preferences and thus an agency cost (e.g., Hong, Kubik, and Scheinkman, 2012; Di Guili and Kostovetsky, 2013; Masulis and Reza, 2015; Cheng, Hong, and Shue, 2016) and that the responsibility of a business should only be to maximize business profits (Friedman, 1970). In contrast, others have argued that CSR adds value for shareholders by creating reputational capital among customers, employees, and other stakeholders (e.g., Bénabou and Tirole, 2010; Deng, Kang, and Low, 2013; Ferrell, Liang, and Renneboog, 2016). Many existing papers have focused on the value of CSR investments, with an emphasis on the empirical challenges in addressing the causal impact of CSR. However, relatively little has been done empirically to examine the specific conditions in which CSR engagements create real impact on firm performance. In this paper, we depart from the existing studies by examining one specific channel in which CSR can generate real value for the firm: CSR activities that are publicized in the media. Furthermore, we also explore and try to answer whether the value of publicized CSR differs depending on whether CSR engagements have a direct benefit for firms‟ local stakeholders or have a broader social impact. Publicized CSR activities directly address one important channel in the value-maximizing theory of CSR: CSR awareness.