Social Responsibility in Capital Markets: A Review and Framework of Theory and Empirical Evidence

Abstract

This study consolidates the existing body of knowledge on the theory and empirical evidence of shareholder value effects of social responsibility and the returns to socially responsible investing. In doing so, it draws from the literature in accounting, economics, finance, law and management with evidence from related disciplines. Based on the findings of the prior literature the study proposes a framework that distinguishes between the corporate view (CSR) and the investor view (SRI). In CSR it discriminates between three hypotheses of shareholder value effects of corporate social responsibility: Agency costs, delegated philanthropy and ‘doing well by doing good’. Within the latter it identifies four impact areas and several channels of influence to aid future researchers to answer more targeted research questions on the relationship between CSR and shareholder value. In SRI the study reviews the evidence how social responsibility affects investment returns and how CSR is incorporated into asset prices distinguishing between firm-level and fund-level effects. The study identifies differences by investment strategies and investor characteristics. Based on the proposed framework the study concludes with suggestions for future research.

Keywords: Corporate social responsibility; CSR; socially responsible investing; SRI; shareholder value; instrumental stakeholder theory; ESG investing

JEL Classification: A13, G11, G12, G23, H41, L21, M14, M41