The Asymmetric Impact of Corporate Social Responsibility on Stock Returns

This study examines the impact of corporate social responsibility (CSR) on stock returns by analyzing the cumulative abnormal returns (CAR) surrounding foreign direct investment (FDI) announcements. Using a sample of 20,275 FDI deals by 2,488 firms from 48 home countries investing in 121 host countries, we find that CSR is positively correlated with CAR when the stock market reacts negatively to FDI announcements and negatively correlated with CAR when the stock market responds positively to FDI announcements. These results suggest that CSR attenuates share price increases caused by positive events and mitigates share price decreases caused by negative events. CSR is negatively correlated with stock return volatility, proxied by squared CAR around FDI announcements. Therefore, we propose that CSR modulates stock return changes asymmetrically. Our results suggest that CSR engagement might be viewed as an implicit swap between a firm and its social stakeholders.