Corporate Social Responsibility and Stock Prices: The Environmental Awareness of Shareholders

This study examines whether shareholders are sensitive to corporations’environmental footprint. Specifically, we conduct an event study around the announcement of corporate news related to environment for all U.S. publicly-traded companies from 1980 to 2009. Consistent with the view that environmental corporate social responsibility (CSR) generates new and competitive resources for firms, we find that companies reported to behave responsibly towards the environment experience a significant stock price increase, whereas firms that behave irresponsibly face a significant stock price decrease. Extending this view of “environment-as-a-resource,”we posit that the value of environmental CSR depends on external and internal moderators. First, we argue that external pressure to behave responsibly towards the environment– which has increased dramatically over the past decades– exacerbates the punishment for eco-harmful behavior and reduces the reward for eco-friendly initiatives. This argument is supported by the data: over time, the negative stock market reaction to eco-harmful behavior has increased, while the positive reaction to eco-friendly initiatives has decreased. Second, we argue that environmental CSR is a resource with decreasing marginal returns. Consistent with this view, we find that the positive (negative) stock market reaction to eco-friendly (-harmful) events is smaller for companies with higher levels of environmental CSR. ∗Contact information: MIT Sloan School of Management, 100 Main Street, E62-421, Cambridge, MA 02142. Email: [email protected].