Corporate Social Responsibility and Stock Performance—Evidence from Taiwan

Traditionally, a firm aims to achieve the goal of maximizing firm value. The concept of business ethics arises to examine how a firm could meet the goal of maximizing firm value while in the meantime meditating the conflicts among all the stakeholders ethically. Recently, the concept of business ethics evolves into corporate social responsibility (CSR), which now has become a major issue in the business environment. The modern definition of CSR argues that a firm, as a corporate citizen, is expected not only to fulfill its economic responsibility, but also its social and environmental responsibilities. Built on this new definition, this study aims to empirically explore the impact of fulfilling CSR on stock performance. For this research purpose, we construct a local CSR index (CSRI) based on two ideas, socially responsible investment (SRI) and corporate contributions to stakeholders. Sampled the data from Taiwan Stock Exchange and Taiwan Economic Journal for the time period of 2001-2009, three CSR portfolios based on the CSRI (high, medium, and low) are constructed to examine short-run and long-run stock returns relative to those of benchmark portfolios (market index, value stocks, and growth stocks). The main finding reveals that fulfilling CSR has a significantly positive impact on stock performance. The implication suggests that a firm could serve as a good corporate citizen, while in the meantime pursuing the growth of stockholder’s wealth.