Investors in emerging markets take into account changes in the level of corporate social responsibility and respond positively to its growth and negatively to its decline. Presence of a company in the ethical RESPECT Index helps to communicate higher standards of corporate social responsibility. Indicating that to investors may impact a company’s market value.
The study finds that CSR significantly improves profitability, management efficiency, and market valuation. On the other hand, corporate irresponsibility has a marginal effect on damaging profitability only — and no significant effect on damaging management efficiency or market valuation. When a firm acts both responsibly and irresponsibly, the study confirms the “halo-effect” because the positive impact of CSR on financial performance outweighs the negative impact of acting irresponsibly.
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