Corporate Social Performance and Financial Risk: Evidence from European Firms

Abstract

This study examines empirically the relationship between the corporate social performance (CSP) of European firms, as given by Vigeo ratings, and their financial risk. We consider 2,626 social ratings of 447 companies in the Stoxx Europe 600 index from 2004 to 2011. Using multivariate analysis through OLS regressions, based on corporate social responsibility (CSR) fields, we show that companies with higher CSP have lower specific risk and volatility of return on assets, particularly when the human resources field is at stake. Considering the firms’ systematic risk and the analysts’ earnings forecast dispersion, we evidence a positive and strong relationship between these risk proxies and CSP. This suggests that both higher systematic risk and higher analysts’ earnings forecasting dispersion encourage companies to improve their social performance.