This study is an extension
to Shalchian et al. (2015) and investigates the effect of the “liquidity” risk
factor on the performance of socially responsible investments in different
industries and based on different dimensions of corporate social
responsibility. Using Pastor and Stambault’s liquidity risk factor, we find
that in the mining industry and based on the dimensions of “environment”, “employees’
relations” and “community involvement”, socially responsible investments are relatively
less exposed to the liquidity risk factor. Our results also suggest that
compared to conventional investments in the manufacturing and service
industries, socially responsible investment’s performance is more sensitive to
the liquidity risk factor.
References
[1]
Bauer, R., Derwall, J., & Hann, D. (2009). Employees Relation and Credit Risk. http://www.ssrn.com-1483112
[2]
Bouslah, K., Kryzanowski, L., & M’Zali, B. (2013). The Impact of the Dimensions of Social Performance on Firm Risk. Journal of Banking & Finance, 37, 1258-1273. https://doi.org/10.1016/j.jbankfin.2012.12.004
[3]
Brennan, M. J., & Subrahmanyan, A. (1996). Market Microstructure and Asset Pricing: On the Compensation for Illiquidity of Stock Return. Journal of Financial Economics, 41, 441-464. https://doi.org/10.1016/0304-405X(95)00870-K
[4]
Carhart, M. M. (1997). On Persistence in Mutual Fund Performance. Journal of Finance, 52, 57-82. https://doi.org/10.1111/j.1540-6261.1997.tb03808.x
[5]
Chordia, T., Subrahmanyan, A., & Anshuman, V. R. (2001). Trading Activity and Expected Stock Return. Journal of Financial Economics, 59, 3-32. https://doi.org/10.1016/S0304-405X(00)00080-5
[6]
Chung, S. Y., Eneroth, K., & Schneeweis, T. (2003). Corporate Reputation and Investment Performance: The UK and US Experience. Research in International Business and Finance, 17, 273-291.
[7]
Cohen, M. A., Fenn, S. A., & Konar, S. (1997). Environmental and Financial Performance: Are They Related? Working Paper, Vanderbilt University.
[8]
Derwall, J., Guestner, N., Bauer, R., & Koedijk, K. (2005). The Eco-Efficiency Premium Puzzle. The Financial Analysts Journal, 61, 51-61. https://doi.org/10.2469/faj.v61.n2.2716
[9]
Eisfeldt, A. (2002). Endogenous Liquidity in Asset Markets. Working Paper Extension III, Northwestern University.
[10]
El Ghoul, S., Guedhami, O., Kwok, C. Y., & Mishra, D. R. (2011). Does Corporate Social Responsibility Affect the Cost of Capital? Journal of Banking & Finance, 35, 2388-2406. https://doi.org/10.1016/j.jbankfin.2011.02.007
[11]
Fiori, F. (2000). Liquidity Premia in the Equity Market: An Investigation into the Characteristics of Liquidity and Trading Activity. Working Paper, Chicago, IL: Chicago University.
[12]
Goss, A. (2012). Corporate Social Performance and Idiosyncratic Risk: A Variance Decomposition Analysis. In Midwest Finance Association Annual Meeting. Midwest Finance Association.
[13]
Goss, A., & Roberts, G. R. (2011). The Impact of Corporate Social Responsibility on the Cost of Bank Loans. Journal of Banking & Finance, 35, 1794-1810. https://doi.org/10.1016/j.jbankfin.2010.12.002
[14]
Griffin, J. J., & Mahon, J. F. (1997). The Corporate Social Performance and Corporate Financial Performance Debate: Twenty-Five Years of Incomparable Research. Business and Society, 36, 5-31. https://doi.org/10.1177/000765039703600102
[15]
Harrisson, J. S., & Freeman, E. W. (1999). Stakeholders, Social Responsibility and Performance: Empirical Evidence and Theoretical Perspectives. Academy of Management Journal, 42, 479-485.
[16]
Holmstrom, B., & Triole, J. (2001). LAPM: A Liquidity-Based Asset Pricing Model. The Journal of Finance, 56, 1837-1867. https://doi.org/10.1111/0022-1082.00391
[17]
Huberman, G., & Halka, D. (2001). Systematic Liquidity. Journal of Financial Research, 24, 161-178. https://doi.org/10.1111/j.1475-6803.2001.tb00763.x
[18]
Kempf, A., & Osthoff, P. (2007). The Effect of Socially Responsible Investing on Portfolio Performance. European Financial Management, 13, 908-922. https://doi.org/10.1111/j.1468-036X.2007.00402.x
[19]
Lee, D. D., & Faff, R. W. (2009). Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective. Financial Review, 44, 213-237. https://doi.org/10.1111/j.1540-6288.2009.00216.x
[20]
Lo, L. W., & Wang, J. (2000). Trading Volume: Definitions, Data Analysis, and Implications of Portfolio Theory. The Review of Financial Studies, 13, 257-300. https://doi.org/10.1093/rfs/13.2.257
[21]
Moore, G. (2001). Corporate Social and Financial Performance: An Investigation in U.K. Supermarket Industry. Journal of Business Ethics, 34, 299-315. https://doi.org/10.1023/A:1012537016969
[22]
Pastor, L., & Stambault, R. F. (2003). Liquidity Risk and Exposed Stock Return. Journal of Political Economy, 111, 642-685. https://doi.org/10.1086/374184
[23]
Robinson, M., Kleffner, A., & Barrels, S. (2008). The Value of Reputation for Corporate Social Responsibility: Empirical Evidence. Working Paper, Ann Arbor, MI: University of Michigan.
[24]
Salama, A., Anderson, K., & Toms, J. S. (2011). Does Community and Environmental Responsibility Affect Firm’s Risk: Evidence from UK Panel Data, 1994-2006. Business Ethics: A European Review, 20, 192-204. https://doi.org/10.1111/j.1467-8608.2011.01617.x
[25]
Shalchian, H., Bouslah, K., & M’Zali, B. (2015). A Multi-Dimensional Analysis of Corporate Social Responsibility: Different Signals in Different Industries. Journal of Financial Risk Management, 4, 90-107.
[26]
Shalchian, H., M’Zali, B., & Paquet, A. (2014). A Theoretical Underpinning of the Relation between Corporate Social Performance and Stock Returns. Journal of Business and Economics, 5, 249-259. https://doi.org/10.15341/jbe(2155-7950)/12.05.2014/004
[27]
Shalchian, H., M’Zali, B., Elbadraoui, K., & Lilti, J. J. (2012). On the Performance of Socially Responsible Investing: Further Evidence. Bankers, Markets and Investors, 112, 30-42.
[28]
Simpson, W. G., & Kohers, T. (2002). The Link between Corporate Social and Financial Performance: Evidence from Banking Industry. Journal of Business Ethics, 35, 97-109. https://doi.org/10.1023/A:1013082525900
[29]
Stanwick, P. A., & Stanwick, S. D. (1998). The Relation between Corporate Social Performance and Organizational Size, Financial Performance, and Environmental Performance: An Empirical Examination. Journal of Business Ethics, 17, 195-204. https://doi.org/10.1023/A:1005784421547
[30]
Starks, L. T. (2009). EFA Keynote Speech: “Corporate Governance and Corporate Social Responsibility: What Do Investors Care about? What Should Investors Care about?” Financial Review, 44, 461-468. https://doi.org/10.1111/j.1540-6288.2009.00225.x
[31]
Waddock, S., & Graves, S. B. (1997). The Corporate Social Performance-Financial Performance Link. Strategic Management Journal, 18, 303-327. https://doi.org/10.1002/(SICI)1097-0266(199704)18:4<303::AID-SMJ869>3.0.CO;2-G
[32]
Yamashita, R., Miwaka, S., Sen, S., & Robers, M. C. (1999). The Rewards of Environmental Conscientiousness Is U.S. Capital Market. Journal of Financial and Strategic Decision, 12, 73-82.
