corporate social responsibility, noise, and stock market.pdfVIP

The Academy of Management Perspectives 2013, Vol. 27, No. 3, 238–254. /10.5465/amp.2012.0097 A R T I C L E S CORPORATE SOCIAL RESPONSIBILITY, NOISE, AND STOCK MARKET VOLATILITY MARC ORLITZKY University of South Australia Business School, Adelaide, Australia Organizational signals about corporate social responsibility may have a harmful impact on equity markets for two main reasons. First, corporate social responsibility is not systematically correlated with companies’ economic fundamentals. Second, opportunistic managers are incentivized to distort information provided to market participants about their firms’ corporate social responsibility. Either causal force, by itself, makes it difficult for market participants to interpret information about corpo- rate social responsibility accurately. This greater noise in financial markets typically invites more noise trading, which in turn leads to excess market volatility (among all publicly traded firms) and, in a particular context of social-institutional processes and structures, to excess market valuations of firms that are widely perceived as socially responsible. Many corporations face increasing pressure from Presenting a positive rather than normative the- various constituencies to become more “socially ory (Friedman, 1953), this article advances a theo- responsible.” Consistent with its growing impor-