Corporate social responsibilities and stock returns: Stochastic dominance approach

Empirical studies which examine corporate social responsibility (CSR) and financial performance employed accounting and market-based indicators as performance proxies. As the ultimate goal of a typical firm is maximizing its profits, while for a typical public company, the goal is to maximize its stockholderʹs wealth. Thus, based on stock returns distribution, the study employ stochastic dominance (SD) approach to examine relative performance between CSR versus non-CSR firms which are compiled by the Global Views Monthly from July, 2005 to August, 2009. The advantage of SD approach is that it lightens the problems that can arise if the asset returns are not normally distributed because it utilizes the whole distribution of returns. Since SD is nonparametric, SD tests do not require any specific assumptions on investorsʹ utility function or the returns distribution of asset and thus avoid the joint test problem inherent in the standard approach. Most of the evidence shows the dominance in stock returns of non-CSR firms relative to the CSR firms. Thus, investors in Taiwan do not price CSR for their investment decision.