Between responsive gestures and adaptive actions: deciphering the differential impact of CSR strategies on stock market performance

Abstract

Purpose

This paper offers a fresh perspective on this debate by exploring the direct relationship between a firm’s stock price performance and its CSR activities, placing particular emphasis on the underlying intent or motive behind the CSR initiatives.

Design/methodology/approach

This research examines the relationship between a firm’s stock price and its corporate social responsibility (CSR) activities, distinguishing between responsive and adaptive CSR. While responsive CSR, often a response to negative events, elicits immediate positive stock performance, adaptive CSR initially triggers negative stock performance. However, long-term analysis reveals adaptive CSR leads to positive stock performance, especially for family firms. The study challenges the notion of market myopia, suggesting the market values responsive CSR in the short term but recognizes the long-term benefits of adaptive CSR over time. Clear communication about adaptive CSR intentions and benefits may help in accurate market valuation.

Findings

This research examines the relationship between a firm’s stock price and its CSR activities, distinguishing between responsive and adaptive CSR. While responsive CSR, often a response to negative events, elicits immediate positive market reactions, adaptive CSR initially triggers negative reactions. However, long-term analysis reveals adaptive CSR leads to positive returns, especially for family firms.

Practical implications

The study challenges the notion of market myopia, suggesting the market values responsive CSR in the short term but recognizes the long-term benefits of adaptive CSR over time. Clear communication about adaptive CSR intentions and benefits may help in accurate market valuation.

Originality/value

First, it expands on previous studies by exploring how the different motivations behind CSR activities lead to varying effects on stock returns. Second, it sheds new light on the subject of market myopia. The findings demonstrate that adaptive CSR initiatives can initially trigger market reactions similar to those caused by perceived over-investment, in contrast to the more favorable response to responsive CSR activities.

Citation

Kumar, S., Ravi, R. and Basu, N. (2024), "Between responsive gestures and adaptive actions: deciphering the differential impact of CSR strategies on stock market performance", Managerial Finance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/MF-01-2024-0052