Fishing the Corporate Social Responsibility Risk Factors

Abstract

Corporate Social Responsibility (CSR) is an increasingly relevant aspect in the current economic and financial scenario. A typical argument in the literature is that CSR reduces the risk of conflicts with stakeholders. In this paper we test whether: i) CSR risk factors are uncorrelated with those traditionally considered, ii) exist a pricing anomaly related to a social responsible behavior that could be captured by CSR risk factors, and iii) a multifactor model that includes a CSR risk factor performs better in explaining the cross section of expected returns. Our finding documents that CSR risk factors are uncorrelated with those traditionally used by asset pricing literature. We find that large stocks are more exposed than small stocks to this source of risk and that, even if the pricing anomaly is still significant, an asset pricing model augmented with a CSR risk factor performs better than standard models in explaining the cross section of stock returns.