Financial Performance of Socially Responsible Investing Fund Firms

While corporate social responsibility (CSR) activities are socially desirable, CSR firms may or may not perform financially well, depending on whether they can convey good corporate image to their customers and financial community, and enhance their revenue enough to cover the expenses resulting from their CSR activities. There have been many studies looking into this issue, with their conclusions being inconclusive where CSR firms are variously defined. This study examines the financial performance of CSR firms, defined as the firms whose stocks are selected into the SRI (Socially Responsible Investing) funds. The study empirically tests whether CSR firms (SRI fund firms) reveal good financial performance in terms of reported earnings and a market measure, based on a sample of Korean listed firms whose stocks were included in an SRI fund during the period from 2010 to 2015. The study found that SRI fund firms revealed better financial performance than non－SRI fund firms: their ROE and Tobin’s Q are relatively significantly higher. This evidence implies that SRI fund firms draw favor from the social and economic community and signal better economic prospect of SRI firms to the present and potential investors.