Why Do Investors Trade Around Social Rating Announcements?

This paper investigates the trading motives around Corporate Social Responsibility (CSR) rating announcements. Focusing on the European market, we use Vigeo ratings, which are disclosed almost every month, while others agencies like KLD rate whole firms annually. This periodicity enables us to use an event study methodology to measure abnormal trading volume associated with rating announcements. Controlling for endogeneity and causality this paper clearly shows that before the announcement trading volume drops sharply while it increases afterwards, both effects compensating. The willingness to trade depends on trading costs, prior private information and the information content of the announcement. Our results show no effect of aggregated scores (or their revision). We evidence that Business Behavior, Human Resources and some precise topics (as Executive Remuneration or Societal Behavior) influence significantly investors' trades. Beyond financial information, CSR rating agencies produce valuable information used by investors. These results suggest that a broader dissemination of CSR rating should improve market quality