UBC study finds a stock value boost for CSR-focused corporations
As investors seek to make responsible investments, a new study says they will pay a premium for stocks in companies that make corporate social responsibility a priority.
And investors are also likely to see better performance from companies with a strong record in CSR according to a new study from the University of British Columbia.
It found that giving back is not only boosting companies’ standing among consumers and employees, but also their market values.
The UBC Sauder School of Business found that when public interest in corporate social responsibility is high, investors place a premium on companies that get involved in CSR activities, so when companies do good, investors perceive greater value — even if the fundamentals aren’t especially impressive.
“Back in the late ‘90s there was similar investor sentiment for dot-com companies. Companies changed their names to dot-com and they saw their stock prices increase,” says UBC Sauder Assistant Professor Ira Yeung, who co-authored the study.
Yeung noted a similar bounce for blockchain companies in recent years.
To assess the impact of CSR on stock prices, the team studied Thomson Reuters ASSET 4 databases and thousands of corporate press releases that announced CSR initiatives.
They found that as well as stock prices increasing when public interest in CSR rises, companies react to this increased sentiment by doing more CSR activity – especially when they are seeking a short-term stock value boost.
“The value of the company is not just purely the future cash flows or future profits,” adds Yeung. “Clearly investors value companies more than just future profits, and CSR activities play a role in that.”
Don’t overdo it
There is a risk though, as with the dot-com bubble, that corporates overdo their CSR activity and the premium paid for their shares could diminish; although Yeung says CSR sentiment is trending higher currently.
Investors should be mindful that they don’t overpay for companies whose stock values may be boosted by CSR-driven sentiment.
A recent report suggests that responsible investments may not provide better performance in the long term.
“Some of these companies might be responding too much to CSR sentiment, or they might be quite overpriced relative to companies that are not doing CSR, so the future returns of these high CSR firms could be lower,” explains Yeung. “They should be a little wary about investing in some of these companies, especially when investor sentiment for CSR is high.”
Beyond the bottom line: New @UBCSauderSchool research finds investors favour companies that give back - https://t.co/5I0GORCfFm pic.twitter.com/kf3S3vaaFZ
— UBC Media Relations (@ubcnews) July 30, 2019
