Exploring the Relationship between Corporate Social Responsibility and Firm Value : The Role of Market Volatility and Investor Sentiment

This thesis examines the influence of Corporate Social Responsibility (CSR) on firm value under varying market conditions, particularly market volatility and investor sentiment. Employing a Generalized Least Squares regression with fixed effects, this study analyzes data from firms listed on the S&P 500 index from 2012 to 2020. The results indicate that higher commitment to CSR positively impacts firm valuation, reflected in a higher Tobin’s Q, supporting previous literature. However, no significant relationship is found between CSR activities and firm performance, measured by ROA, contradicting some prior studies. Interestingly, the study also reveals that the positive influence of CSR on firm value is less pronounced during periods of high market volatility, suggesting that during times of economic turbulence, investors may prefer financial metrics over ESG initiatives. Further investor sentiment is found to play a moderating role in the relationship between CSR and firm value. However, the effect vary when taking different sentiment indexes into consideration. The overall findings underscore the strategic importance of CSR initiatives, not just as ethical obligations, but also as tools capable of influencing firm valuation