Study shows where higher stock returns are found

DAVIS
November 1, 2012 11:30am

Companies that tout social responsibility and whose managers contribute to political action committees tend to provide higher returns to shareholders, concludes a new University of California, Davis, study.

"Especially for smaller public companies, if the firm has been active in disclosing corporate social responsibility measures and if the individuals in the company are politically active, there's a good chance you will do better in the stock market if you invest in that company," says Paul Griffin, a professor at the UC Davis Graduate School of Management.

Mr. Griffin and co-author Yuan Sun, a doctoral candidate at the Haas School, UC Berkeley, analyzed extensive data on voluntary corporate social responsibility disclosures, campaign contributions and stock performance. Their findings are published in the working paper, "Strange Bedfellows? Voluntary CSR Disclosure and Politics."

The researchers also found that companies were more likely to make social responsibility disclosures if they were headquartered in a so-called "blue state," or one that traditionally has voted Democratic in national elections.

"We hypothesized that if a state where a corporation is located is blue, on balance, the customers, the suppliers, and even the shareholders have that same tendency to be blue," says Mr. Griffin.

The researchers determined that companies that issue more press releases on CSRwire, an online news service that publishes reports issued by member organizations on issues related to sustainability and corporate social responsibility tend to have more management employees who contribute to political action committees. The correlation was strongest with individuals who donated to political

action committees affiliated with the Democratic Party.

Additionally, the stock market reacted favorably when corporations posted news releases on the CSRwire, they found. The market effect intensified if company managers also made contributions to political action committees.

"The effects on stock values of CSRwire releases are immediate and can continue for up to three months after the disclosure," says Mr. Griffin.

But he cautions that while the correlations are strong, researchers need to look more closely at the underlying pathways whereby CSR disclosure and political contributions combine to produce shareholder gains.

To measure companies' social responsibility, the researchers studied more than 14,500 news releases posted between 2000 and 2011 by CSRwire.