Corporate social responsibilities and stock returns: Stochastic dominance approach

Abstract

Empirical studies which examine corporate social responsibility (CSR) and financial performance employed
accounting and market-based indicators as performance proxies. As the ultimate goal of a typical firm is
maximizing its profits, while for a typical public company, the goal is to maximize its stockholder’s wealth.
Thus, based on stock returns distribution, the study employ stochastic dominance (SD) approach to examine
relative performance between CSR versus non-CSR firms which are compiled by the Global Views Monthly
from July, 2005 to August, 2009. The advantage of SD approach is that it lightens the problems that can arise if
the asset returns are not normally distributed because it utilizes the whole distribution of returns. Since SD is
nonparametric, SD tests do not require any specific assumptions on investors’ utility function or the returns
distribution of asset and thus avoid the joint test problem inherent in the standard approach. Most of the
evidence shows the dominance in stock returns of non-CSR firms relative to the CSR firms. Thus, investors in
Taiwan do not price CSR for their investment decision