Ayton, Julie, Krasnikova, N. and Malki, I. 2022. Corporate social performance and financial risk: Further empirical evidence using higher frequency data. International Review of Financial Analysis. 80 (March) 102030. https://doi.org/10.1016/j.irfa.2022.102030
| Title | Corporate social performance and financial risk: Further empirical evidence using higher frequency data |
|---|---|
| Type | Journal article |
| Authors | Ayton, Julie, Krasnikova, N. and Malki, I. |
| Abstract | Using a unique dataset of corporate social responsibility rating – available on a monthly basis – we shed new light on the relationship between corporate social performance (CSP) and firm risk. Where previous studies use annual (at best) measures of CSP, assuming that a change in CSP leads a change in risk, we formally test the direction of the relationship using Granger causality. Looking at large UK companies over 2002-2018 (for a total number of 19,832 firm-months), we reject any causality (either way) between CSP and financial risk (both systematic and idiosyncratic risk). This shows that the CSP-risk relationship is not an endogenous one, contrary to what previous evidence has found. Given the structure of our panel data (long T and short N), we apply GLS based estimator to correct for serial correlation in our panel regressions. We find strong evidence that CSP has a negative impact on idiosyncratic risk; however, the effect of CSP on systematic risk is not statistically significant. The existence of a contemporaneous, rather than lagged relationship doesn’t fare well with established CSP theories. Overall, our original approach has opened a new door to further the study of the link between CSP, financial performance and financial risk. |
| Keywords | Corporate social performance |
| Financial risk | |
| Granger causality | |
| Panel regression | |
| UK companies | |
| Article number | 102030 |
| Journal | International Review of Financial Analysis |
| Journal citation | 80 (March) |
| ISSN | 1057-5219 |
| Year | 2022 |
| Publisher | Elsevier |
| Accepted author manuscript | License CC BY-NC-ND 4.0 File Access Level Open (open metadata and files) |
| Digital Object Identifier (DOI) | https://doi.org/10.1016/j.irfa.2022.102030 |
| Web address (URL) | https://www.sciencedirect.com/science/article/pii/S1057521922000102?via%3Dihub |
| Publication dates | |
| Published in print | 01 Mar 2022 |
| Published online | 17 Jan 2022 |