Why Do Firms Invest in Corporate Social Responsibility and Does it Matter?
Friday, Jan. 5, 2018 2:30 PM - 4:30 PM
- Chair: I. J. Alexander Dyck, University of Toronto
ESG Shareholder Engagement and Downside Risk
AbstractWe show that shareholder engagement on environmental, social and governance (ESG) issues creates value by reducing downside risk, measured using lower partial moments and value at risk. We document this effect by exploiting proprietary access to the complete engagement database of one of the world’s largest institutional shareholder activist. The risk effect of ESG engagement varies across engagement themes. It is effective when governance or strategy topics are addressed, and if changes in firms’ environmental policies (especially on climate risk) are coupled with governance improvements.
Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around The World
AbstractWe study the relationship between employee satisfaction and firm performance around the world, using lists of the “Best Companies to Work For” in 14 countries. Employee satisfaction is associated with superior long-run returns, current valuation ratios, future profitability, and earnings surprises in flexible labor markets, such as the US and UK, but not rigid labor markets, such as Germany. These results are consistent with employee satisfaction improving recruitment, retention, and motivation in flexible labor markets, where firms face fewer constraints on hiring and firing and employees have greater ability to respond to higher satisfaction. In rigid labor markets, legislation already provides minimum standards for worker welfare and so additional expenditure may exhibit diminishing returns. The findings have implications for the differential profitability of socially responsible investing strategies around the world – in particular, the importance of considering institutional factors when forming such strategies.
Leviathan Inc. and Corporate Environmental Engagement
AbstractIn a 2010 special report, The Economist called the resurgence of state-owned mega-enterprises, especially those in emerging economies, “Leviathan Inc.”, and criticized their poor governance and low efficiency. We show that state-owned enterprises engage more in environmental issues and are more responsive to salient environmental events. The effect is more pronounced in energy firms located in emerging economies and countries with higher energy risks, and with direct ownership held by domestic government rather than sovereign wealth funds. Market value does not suffer from such engagement. These results suggest that “Leviathan Inc.” may be better positioned at dealing with environmental externalities.
- G3 - Corporate Finance and Governance