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|Title:||Market Reaction to Corporate Social Performance|
|Author(s):||Stevens, William Patrick|
|Department / Program:||Accountancy|
|Degree Granting Institution:||University of Illinois at Urbana-Champaign|
|Subject(s):||Business Administration, Accounting|
|Abstract:||This dissertation investigated the general issue of investors' use of data on corporate social performance. The problem addressed was, do investors, in their role in forming security prices, use data on social performance in their investment decisions? To address this question, two basic approaches were explored. First, an analytical framework was developed to analyze the role of social performance data in various models of investor behavior, with special emphasis on the Capital Asset Pricing Model. The second approach to the research problem consisted of measuring and testing the information content of disclosure of a specific subset of social performance. This subset was environmental performance, as represented by estimated future pollution control expenditures.
The dependent variables in the empirical tests were estimates, by firm, of future pollution control expenditures which would be necessary to achieve state-of-the-art pollution control. These data were provided in a series of studies undertaken by the Council on Economic Priorities (C.E.P.), an independent research group.
To test the information content of this data to investors, a variant of the grouping technique developed by Gonedes was employed. The hypothesis tested was that firms with better environmental performance records would outperform firms with inferior records. To test this hypothesis, returns were computed for two sample portfolios consisting of firms from four industries: pulp and paper, oil refining, steel, and electric utilities. The sample portfolios corresponded to high and low environmental performance firms, which were compared to each other and to a control portfolio comprised of firms from industries judged to be relatively unaffected by environmental regulation. All portfolios were made equivalent with regard to risk, thus making it possible to concentrate on observed differences in portfolio returns. To test for the effect of prior leakage of information to the market, a second test was run on a reduced sample of firms. The reduced sample excluded all firms for which evidence of ex ante information leakage existed.
For the original sample, evidence was found to support the hypothesis that environmental performance data has information content for investors. Specifically, firms with good environmental records outperformed firms with poor records. Information content was strongest for firms with poor records, with returns for these firms being significantly lower than for control firms. Results for the second, reduced sample, however, were not so clear. When information leakage was controlled for, information content was found to be virtually nonexistent. Although firms with good environmental records still outperformed firms with poor records, the differences in returns were greatly reduced, and not statistically significant. A possible explanation for this result is that the C.E.P. information interacts with other sources of market information to provide data of interest to investors. The C.E.P. data may be confirming information which has reached the market via other sources, such as annual reports or the financial press. The C.E.P. data, considered by themselves, may lack information content because of the unusual source of the data, as well as the uncertainty surrounding the ultimate realization of the expenditures in question.
Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1980.
|Date Available in IDEALS:||2014-12-14|