The Impact of Corporate Social Responsibility on Firm Value - The Role of Shareholder Preferences

Abstract

This article shows that corporate social responsibility (CSR) is positively related to firm value, given firms have shareholders who reveal a corresponding preference for social or environmental performance, as proxied by their quantifiable investment habits. I suspect that this corresponds to an appreciation by socially responsible investors and is reflected in higher value for firms with a stronger CSR performance. In line with this conjecture, I find a premium of 4% in relation to the average firm value for higher environmental performance and 3.5% for higher social performance. The results are consistent with theoretical concepts arguing that CSR expenditures can be compatible with value maximization if it is a response to shareholder preferences.