Kellogg research shows more to CSR than meets the eye

Does CSR make money? It is one of the questions that divides the academic world. Those that promote CSR - corporate social responsibility - argue that it improves the bottom line through brand reputation and more productive employees. Those against, say that shareholder value should be the driving force for business.

The latest research from the Kellogg school at Northwestern University suggests that neither argument gets to the whole truth.

According to three professors in the accounting, information and management department, CSR expenditures do not generate adequate returns and so reduce shareholder value, but in companies where spending on CSR exceeds investor expectations, stock prices rise. However, the reasons for this have nothing to do with concerns about society, say Thomas Lys, James Naughton and Clare Wang.

When companies invest in CSR it sends a signal to investors that executives know something that investors do not, and that they expect higher future earnings, according to the research. “To put it simply, CSR is what ‘rich’ companies do!” conclude the authors.

http://www.kellogg.northwestern.edu