Study: CSR Disclosure, PAC Contributions Increase Companies’ Returns


Companies that tout social responsibility and whose managers contribute to political action committees tend to provide higher returns to shareholders, according to research by the University of California, Davis.

The trend is especially prevalent in smaller, left-leaning companies, according to the working paper Strange Bedfellows? Voluntary CSR Disclosure and Politics. A strategy of investing in small companies with Democratic managers and frequent CSR disclosure produces a significant hedge excess return of 4.5 percent over the three months following CSR disclosure, the researchers found.

Additionally, the stock market reacted favorably when corporations posted news releases on the CSRwire, an online news service that publishes reports issued by member organizations on issues related to sustainability and corporate social responsibility.

This trend was most evident in organizations from the finance, green building and academia sectors, the report shows. Those sectors recorded three-day excess market returns of 1.56 percent, 1.52 percent and 1.46 percent respectively in the three days after they released a corporate sustainability report. The worst performing sector post-CSR release was the green jobs and  career news sector, which posted three-day excess returns of -1.33 percent, the report shows.

The market effect intensified if company managers also made contributions to political action committees.

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,” said Paul Griffin, professor at the UC Davis Graduate School of Management, and one of the paper’s authors.

An earlier study by the same UC Davis team found that companies that voluntarily issue press releases disclosing their carbon emission information see their stock prices rise significantly in the following days.

In a column for Environmental Leader in July, Paul Klein argued that after 10 years of companies’ efforts to engage in corporate social responsibility, the returns for business still aren’t good enough. Klein argues that even though “significant amounts of time and money” are spent on sustainability reporting – an area that has the potential to increase a business’s competitive advantage, improve recruitment and increase sales – the results are often inconsistent and almost always difficult to measure.

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