How Do Investors React When Companies Stop Corporate Social Responsibility Initiatives?

• In Event: Corporate Social Responsibility

Abstract

Corporate social responsibility initiatives differ from other types of business activity because CSR often has an ethical or moral character. We conduct two experiments to examine whether the ethical nature of CSR changes investors’ reactions to stopping socially responsible initiatives compared to stopping other business activities. In our first experiment, we find that investors react more negatively to stopping a CSR initiative than to stopping a general business initiative, even though reactions to starting the initiatives do not differ. In our second experiment, we find that investors react more negatively to stopping a CSR initiative with a higher degree of ethicality than to a CSR initiative with a lower degree of ethicality, consistent with our theory that investors’ more negative reactions result from the ethical nature of CSR. Although prior research suggests benefits of engaging in CSR, our results suggest such benefits may be undone when initiatives end. Further, our results suggest that the ethical nature of CSR may be relevant when judging whether CSR information is material and thus requires disclosure.

Authors

• Shannon Garavaglia, University of Texas at Austin

• Brian Joseph White, University of Texas at Austin

• Julie Texas- Irwin, The University of Texas at Austin