Corporate social responsibility in French listed companies – good for performance, poor for risk?

This paper examines Corporate Social Responsibility (CSR) scores in comparison to both financial performance but also risk in French listed companies. Business case theorists suggest that CSR improves financial performance and lowers risk, and therefore those companies which have higher CSR scores should experience improved financial performance and a reduced risk profile in comparison with those with lower CSR scores. This paper takes a sample of 304 firms over 9 years (2007-2015) from the French PAX index (top 600 listed firms) and examines whether CSR improves financial performance and risk. Financial performance is proxied by Tobin’s Q, Return on Equity (ROE), Return on Assets (ROA), excess returns, enterprise value and market capitalisation. Risk is proxied by firm beta and weighted average cost of capital (WACC). The findings indicate that CSR does improve financial performance across all financial metrics to a statistically significant level (p<0.001), except excess returns, which does not show a significant effect. However, CSR also showed a positive and significant (p<0.001) effect on both risk proxies (beta and WACC), when the expectation based on the business case would be that this would be a negative relationship. This result was compared with a sample of 365 US firms over the same time period from the S&P500 stock index which supported the business case view that CSR improves risk. These results held when each of the constituent subcategories of the CSR score (environmental, social and governance separate scores) were estimated against the same financial and risk proxies. This research is of interest to practitioners who may seek to manage risk through CSR or academics who have an interest in CSR and risk management.

This paper examines Corporate Social Responsibility (CSR) scores in comparison to both financial performance but also risk in French listed companies. Business case theorists suggest that CSR improves financial performance and lowers risk, and therefore those companies which have higher CSR scores should experience improved financial performance and a reduced risk profile in comparison with those with lower CSR scores.
This paper takes a sample of 304 firms over 9 years (2007-2015) from the French PAX index (top 600 listed firms) and examines whether CSR improves financial performance and risk. Financial performance is proxied by Tobin’s Q, Return on Equity (ROE), Return on Assets (ROA), excess returns, enterprise value and market capitalisation. Risk is proxied by firm beta and weighted average cost of capital (WACC).
The findings indicate that CSR does improve financial performance across all financial metrics to a statistically significant level (p<0.001), except excess returns, which does not show a significant effect. However, CSR also showed a positive and significant (p<0.001) effect on both risk proxies (beta and WACC), when the expectation based on the business case would be that this would be a negative relationship. This result was compared with a sample of 365 US firms over the same time period from the S&P500 stock index which supported the business case view that CSR improves risk.
These results held when each of the constituent subcategories of the CSR score (environmental, social and governance separate scores) were estimated against the same financial and risk proxies.
This research is of interest to practitioners who may seek to manage risk through CSR or academics who have an interest in CSR and risk management.