Limits to Nonmarket Insurance: A Textual Analysis of the Impact of CSR on Media Sentiment
- Nair, Abhilash (Indian Institute of Management Kozhikode)
AbstractThe study attempts to test if investment in corporate social responsibility (CSR) activities provides (Nonmarket) insurance like effect when a firm is faced with integrity-based negative event. Prior research has largely focused on the link between CSR investment and corporate financial performance. Among other things, these studies have analyzed the insurance like effect of CSR outlays and the resulting effect of negative events on stock returns, thereby focusing only on the impact on shareholders. However CSR has the potential to influence other stakeholders and this is the focus of our study. We measure the impact of an integrity-based negative event on a firm’s reputation from the perspective of media as a secondary stakeholder. Accordingly, the study analyzes media reports covering two of the largest scams in India, and computes the sentiment scores for each firm alleged to be involved in the scam. We hypothesize an inverse relationship between media sentiment and investments in CSR, after controlling for relevant firm-specific characteristics. Our results report a positive relationship between CSR outlays and ‘net negative’ sentiment score. Thus suggesting that investment in CSR around the time of a integrity-based negative event does not have the potential to offset the negative reputation. As a robustness check, we further examine the potential effect of accumulated corporate reputation, measured as pre-scam media sentiment score, on post-scam media sentiment. We find prima facie evidence suggesting that goodwill accumulated over a period of time prior to the negative event has the potential to provide some insurance effect.
2001-01-01 / 2016-01-01Time Period: Mon Jan 01 00:00:00 EST 2001--Fri Jan 01 00:00:00 EST 2016
2016-04-01 / 2016-12-01Collection Date(s): Fri Apr 01 00:00:00 EDT 2016--Thu Dec 01 00:00:00 EST 2016
Update Metadata: 2019-01-22 | Issue Number: 1 | Registration Date: 2019-01-22