Abstract
Studies that link corporate social and financial performance usually find a positive association between the two. However, the literature does not establish a significant impact of socially responsible investing on stock market returns. We develop a coherent economic framework of responsible investing to address this paradox. The framework offers theoretical underpinnings for all research on responsible investment as it provides the theoretical underpinnings for the actual behavior of market participants. We associate corporate social performance with key financial accounting ratios like the market-to-book ratio (market value of the firm in relation to accounting value), return on assets, and stock market return. We conclude that there is a strong theoretical foundation for a positive relationship between corporate social responsibility and financial performance, though the relation is conditional on which financial performance measure is considered. We illustrate that the empirical literature about responsible investing is well in line with our model's propositions.
| Original language | English |
|---|---|
| Pages (from-to) | 103-121 |
| Journal | Resource and Energy Economics |
| Volume | 41 |
| Early online date | 5 May 2015 |
| DOIs | |
| Publication status | Published - Aug 2015 |
Keywords
- Stock market return
- Socially responsible investing
- Corporate social performance
- Market-to-book
- Return on assets
Access to Document
- Scholtens_2015_REE_Towards_AM
Copyright © 2015 Published by Elsevier B.V. This work is made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at http://dx.doi.org/10.1016/j.reseneeco.2015.04.008
