Taste, information, and asset prices: implications for the valuation of CSR

Taste, information, and asset prices: implications for the valuation of CSR Firms often undertake activities that do not necessarily increase cash flows (e.g., costly investments in corporate social responsibility or CSR), and some investors value these non cash activities (i.e., they have a “taste” for these activities). We develop a model to capture this phenomenon and focus on the asset-pricing implications of differences in investors’ tastes for firms’ activities and outputs. Our model shows that, first, investor taste differences provide a basis for investor clientele effects that are endogenously determined by the shares demanded by different types of investors. Second, because the market must clear at one price, investors’ demands are influenced by all dimensions of firm output even if their preferences are only over some dimensions. Third, information releases cause trading volume, even when all investors have the same information. Fourth, investor taste provides a rationale for corporate spin-offs that help firms better target their shareholder bases. Finally, individual social responsibility can lead to corporate social responsibility when managers care about stock price because price reacts to investments in CSR activities. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Taste, information, and asset prices: implications for the valuation of CSR

Loading next page...
 
/lp/springer_journal/taste-information-and-asset-prices-implications-for-the-valuation-of-Iw0KIPS0LD
Publisher
Springer US
Copyright
Copyright © 2016 by Springer Science+Business Media New York
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance & Economics
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-016-9359-x
Publisher site
See Article on Publisher Site

Abstract

Firms often undertake activities that do not necessarily increase cash flows (e.g., costly investments in corporate social responsibility or CSR), and some investors value these non cash activities (i.e., they have a “taste” for these activities). We develop a model to capture this phenomenon and focus on the asset-pricing implications of differences in investors’ tastes for firms’ activities and outputs. Our model shows that, first, investor taste differences provide a basis for investor clientele effects that are endogenously determined by the shares demanded by different types of investors. Second, because the market must clear at one price, investors’ demands are influenced by all dimensions of firm output even if their preferences are only over some dimensions. Third, information releases cause trading volume, even when all investors have the same information. Fourth, investor taste provides a rationale for corporate spin-offs that help firms better target their shareholder bases. Finally, individual social responsibility can lead to corporate social responsibility when managers care about stock price because price reacts to investments in CSR activities.

Journal

Review of Accounting StudiesSpringer Journals

Published: May 13, 2016

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve Freelancer

DeepDyve Pro

Price
FREE
$49/month

$360/year
Save searches from
Google Scholar,
PubMed
Create lists to
organize your research
Export lists, citations
Read DeepDyve articles
Abstract access only
Unlimited access to over
18 million full-text articles
Print
20 pages/month
PDF Discount
20% off