Does doing good lead to doing better in emerging markets? Stock market responses to the SRI index announcements in Brazil, China, and South Africa

Abstract

This paper investigates whether and how emerging markets reward firms’ corporate social responsibility (CSR) performance. We focus on the socially responsible investment (SRI) index, which lists the top CSR performers and serves as a tool to help investors make investment decisions based on financial and social criteria. We empirically test the financial market responses to the announcements of pioneering SRI indices recently launched in Brazil, China, and South Africa. We find that inclusion on an SRI index in these markets is associated with positive abnormal returns. However, inclusion on an SRI index does not benefit all firms equally: the positive financial response is strengthened by R&D expenditures but weakened by advertising expenditures; it is stronger for firms that have expanded globally to developing countries than those to developed countries.