The overall objective of the study is to deepen our investigation into the CSR sub-ratings by measuring their impact on accounting and stock market performance by first using a “Prospective” approach in which the subsequent performance of the sample companies is predicted by their CSR sub-ratings in Vigeo.

We then perform a “Retrospective” analysis which looks at the accounting and stock market performance of companies at time N-1 as compared with the CSR sub-ratings issued at time N (in other words, whether the performance predicts the ratings). With respect to the Prospective approach, a negative relationship is found between the CSR sub-ratings and the subsequent accounting and stock market performance of the sample companies.

The results of the Retrospective analysis indicate that the sub-ratings are:

(1)    positively related to the market capitalization (i.e. size) of the sample companies;

(2)    negatively related to the difference between the risk of the companies and the average risk of their industry sectors;

(3)    negatively related to the difference between the market return of the sample companies and the average market return of the companies in the sector.

The Retrospective approach confirms the three concepts developed in our previous work namely “political visibility”, “priority” and “downgrading”. In addition, certain sub-ratings, namely: environment (ENV), human resources (HR) and community involvement (CIN) dominate in the aggregate ratings, possibly due to their greater visibility and ease of measurement as compared with corporate governance (CG), human rights (HRts), and business behavior (BB), which are more difficult to measure and require a deeper understanding of the individual companies.

By: Bertrand P. Quere and Genevieve Marie Nouyrigat, both from University of Grenoble – Graduate School of Business, and professor Charles Richard Baker, Adelphi University – School of Business

You can read the full SSRN article here