Mohamad Hassan Shahrour

Composition of the Jury

Abstract

Corporate social responsibility (CSR) has generated a wealth of literature in the field of finance and can have a strategic dimension when it provides managerial benefits, either for the company or for the investor. By distinguishing the impact of CSR at the corporate and investor levels, we draw on the literature on corporate social responsibility (CSR) and socially responsible investing (SRI) and identify some existing gaps in the literature that we aim to fill by developing three complementary studies. In our first study, we hypothesize the impact of CSR (estimated by the CSR ratings produced by Vigeo-Eiris) on default risk (measured by the Merton model (1974), as well as Altman's Z-score (1968)) in the Eurozone and we investigate whether CSR could be considered an insurance-type protection during financial crises and economic downturns. The results validate our hypotheses. This work is complemented by a second study in which we consider an international sample and another proxy for default risk (credit ratings from the three major agencies: Moody's, Standard & Poor's, and Fitch Ratings). We argue that the environmental component of CSR will have the most significant impact on default risk. We further contend that variations in corporate practices or stakeholder demands could be partly explained by differences in the institutional environment (its regulatory, civil, or common law components), which explains why companies tend to have varying levels of CSR commitment. From an international perspective, we confirm that CSR reduces default risk and observe that the environmental component has the greatest impact on this risk. We validate the moderating role of legal systems in the CSR-default risk relationship and find that the negative impact of CSR on corporate default risk is more pronounced in civil law countries than in common law countries. Our results remain unchanged after controlling for endogeneity and reverse causality, and when using different variables. Regarding SRI (Socially Responsible Investing), we attempt to assess the financial and social performance of French mutual funds. We employ a non-parametric approach—Data Envelopment Analysis (DEA)—using various input-output combinations, environmental, social, and governance (ESG) ratings (scores and ratings), and risk measures (total risk, market risk, and downside risk). We further evaluate the performance of these funds using traditional measures found in the literature. To test the validity of the DEA approach in fund performance evaluation, we verified that DEA analysis, performed on inputs and outputs identical to those used in traditional performance measures, generally preserves the fund rankings derived from those measures. We were able to assign an efficiency score to each of the funds examined and rank them according to their respective scores relative to their DEA model. Based on these studies, we have enriched the literature on CSR by demonstrating the effect of CSR on reducing the risk of default and by proposing comprehensive measures of social and financial performance.