Does being good pay off? Corporate social responsibility and spin-off returns

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School of Business | Master's thesis
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Date
2018
Major/Subject
Mcode
Degree programme
Finance
Language
en
Pages
49
Series
Abstract
The purpose of this thesis is to study the effect of corporate social responsibility (CSR) on spin-off returns. I aim to answer the question of whether firms with stronger CSR efforts realize higher spin-off announcement returns and post-spin-off long-term returns than firms with weaker CSR. I focus my analysis on the US market by studying the spin-offs announced by US firms during the period between January 1, 2000 and December 31, 2015. I divide the companies in my sample to high-CSR and low-CSR firms based on their CSR score, retrieved from the social performance ratings data on MSCI. While prior literature finds spin-off announcements to be associated with positive abnormal returns, the verdict on the effects of CSR remains up for discussion. Research proposes two opposed views on CSR – the stakeholder value maximization view and the shareholder expense view, which take a stand for and against CSR, respectively. I run a series of multivariate analyses in order to determine if high-CSR firms make higher announcement returns than low-CSR firms. I also complete a set of calendar-time portfolio analyses to examine the long-term returns following spin-off completion. My analysis yields two main results; first, high-CSR firms appear to realize higher abnormal announcement returns than low-CSR firms. While the abnormal returns for my full sample are positive at 2.3%, high-CSR firms earn 2.5 to 3.0 percentage points more than their low-CSR counterparts in the [-1, 1] time period around spin-off announcements. Second, high-CSR firms appear to make higher abnormal stock returns for the one- and two-year periods after spin-off completion. As such, my results suggest further proof for the stakeholder value maximization view on CSR – a firm’s efforts in the field of social performance do appear to benefit the shareholders of that firm as well. I hypothesize that these results may be driven by high-CSR firms having more support from stakeholders in the uncertain spin-off period, high-CSR firms receiving better treatment from the media in the spin-off news coverage, or the spin-off returns for high-CSR firms containing a positive re-valuation of their CSR efforts.
Description
Thesis advisor
Nyberg, Peter
Keywords
corporate social responsibility, spin-off, divestiture, abnormal returns, announcement returns, long-term returns
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