The missing link between CSR Awards and financial performance: And the winner is...

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The aim of this paper is to address the conditions and mechanisms under which corporate responsibility (CR hereafter) awards may improve financial performance. Specifically, we argue that investor attention as measured by stock popularity is relevant for the relationship between CR awards and financial performance. Using a balanced panel of 879 firms from 25 countries over the 2005-2014 period, linear OLS regression first suggested that there is no significant link between CR awards and Tobin’s Q, even after controlling for investor attention. We went beyond this result and implemented a panel threshold regression (PTR) analysis to study whether there is an optimal investor attention level which may result in threshold effect and asymmetrical responses of the financial performance to CR awards. Interestingly, empirical results show that returns on CR awards are either not significant or negative below the threshold but then become significantly positive above it. Our results remain robust under several different proxies, estimation methods and sample compositions. Overall, this study indicate that CR awards enhance financial performance indirectly through improved firm visibility, but only from a point at which investor attention is optimal.

Author(s):

Amal Aouadi    
Université d'Auvergne
France