Investors May React Emotionally to Corporate Responsibility

In an experiment, graduate business students who studied a fictional retailer’s finances valued the company at $25.92 per share if they were told it had an above-average record on such corporate-responsibility issues as labor and the environment, and just $19.14 per share if its performance on those measures was said to be below average, according to a team led by Mark E. Peecher of the University of Illinois at Urbana-Champaign. But the valuation gap disappeared when the participants were encouraged to think carefully about the company’s CSR, suggesting that the high valuations in the above-average case were “unintentional” and based on emotions. “One wants to avoid being overly swayed by” CSR, the researchers say.