Corporate Social Responsibility, Accruals Anomaly and Profitability Anomaly.

• In Event: CsR

Abstract

This paper investigates the investment performance of accrual and profitability anomalies when CSR performance is taken into the picture. I show that accrual anomaly explains the cross section of stock returns stronger for non-CSR firms, gross profitability anomaly explains the cross section of stock returns stronger for CSR firms, and cash-based operating profitability anomaly shows similar explanatory power for CSR and non-CSR firms. Accordingly, zero-investment portfolio returns based on the ranking of three anomalies are different for CSR and non-CSR firms. Further analysis reveals that earnings quality, especially accruals quality related to CSR performance explains above findings. CSR firms on average have better earnings quality than non-CSR firms. Both accruals and cash flows have higher persistence coefficient for CSR firms. Accruals quality for CSR firms is also significantly better than non-CSR firms. On the other hand, preliminary analysis on institutional investors does not provide an explanation for the different anomalies performance. The percentage of total institutional investors is significantly higher for non-CSR firms, although institutional investors appear to pay a rising interest to CSR firms.

Author

• Rongbing Liu, Umass Boston