Peer Effects of Corporate Social Responsibility

Through its research, the Chinese University of Hong Kong (CUHK) Business School has successfully drawn attention from overseas media, academics and business professionals.

The research study entitled Peer Effects of Corporate Social Responsibility written by Jie Cao, Assistant Professor of Department of Finance and Xintong Zhan, a PhD student of Department of Finance at CUHK Business School, as well as Hao Liang, Assistant Professor of Finance at Singapore Management University, has been featured in the Harvard Law School Forum of Corporate Governance and Financial Regulation since 21 September, 2015.

The study examines how the competitive advantage gained by CSR strategies affects the practice and value of peer firms and concludes that peer behavior plays an important role in shaping companies’ CSR performance. Prof. Cao believes the findings have policy implications.

“Policymakers who aim at promoting corporate socially responsible behaviors can initiate such activities in a few firms and the competitive nature of the market can leverage the impact of the policy and help achieve an overall improvement in CSR on the market,” says Prof. Cao.

In addition, several western media outlets have also published Prof. Cao’s and Zhan’s study. The US-based 3BL Media, a leading news and content distribution company focusing on CSR and Sustainability and related topics, posts a video named “CSR Strategies Affect the Value and Practice of Peer Firms” to feature the study. The video is also uploaded onto the YouTube channel for the general and wider public. ValueWalk, an online financial news media outlet which focuses on value investing and value investors, also publishes a report to feature the study. The media reports not only help to confirm the School’s recognition and impacts on both business and professional communities, but also reinforce the School’s devotion on social responsibility.

This paper has also been presented in universities overseas including the University of Toronto and Wilfrid Laurier University in Canada.

For details of Prof. Cao’s and Zhan’s paper, please refer to the abstract below:

Peer Effects of Corporate Social Responsibility
The study investigates how firms react to their peers’ adoption of corporate social responsibility (CSR) by using a regression discontinuity design that relies on “locally” exogenous variations of CSR generated by shareholder proposals that pass or fail by a small margin of votes. Specifically, the study finds that peers of a voting firm who passed a close-call CSR proposal experience lower announcement returns and higher following-year CSR scores compared to those of a voting firm that marginally failed a CSR proposal. Such effects are stronger in peer firms with higher competitive pressure, better CSR performance relative to the voting firm, and a more transparent information environment. The study finds a more pronounced negative cumulative abnormal returns and a smaller CSR improvement in peer firms with higher financial constraints. Taken together, the study’s empirical results show that peer effects play an important role in shaping firms’ CSR performance and further confirm the argument that CSR has strategic value.

Source: 3BL Media and ValueWalk
Date published/broadcast: 24 September, 2015 / 22 September, 2015