Modern Economy, 2011, 2, 788-799
doi:10.4236/me.2011.25087 Published Online November 2011 (http://www.SciRP.org/journal/me)
Copyright © 2011 SciRes. ME
Corporate Social Responsibility and Stock
Performance—Evidence from Taiwan
Yungchih George Wang
Department of Int ernational Busi ness , National Kaohsiung University of Ap plied Sciences, Chinese Taipei
E-mail: gwang@cc.kuas.edu.tw
Received July 21, 2011; revised August 28, 2011; accepted September 15, 2011
Abstract
Traditionally, a firm aims to achieve the goal of maximizing firm value. The concept of business ethics arises
to examine how a firm could meet the goal of maximizing firm value while in the meantime meditating the
conflicts among all the stakeholders ethically. Recently, the concept of business ethics evolves into corporate
social responsibility (CSR), which now has become a major issue in the business environment. The modern
definition of CSR argues that a firm, as a corporate citizen, is expected not only to fulfill its economic re-
sponsibility, but also its social and environmental responsibilities. Built on this new definition, this study
aims to empirically explore the impact of fulfilling CSR on stock performance. For this research purpose, we
construct a local CSR index (CSRI) based on two ideas, socially responsible investment (SRI) and corporate
contributions to stakeholders. Sampled the data from Taiwan Stock Exchange and Taiwan Economic Journal
for the time period of 2001-2009, three CSR portfolios based on the CSRI (high, medium, and low) are con-
structed to examine short-run and long-run stock returns relative to those of benchmark portfolios (market
index, value stocks, and growth stocks). The main finding reveals that fulfilling CSR has a significantly
positive impact on stock performance. The implication suggests that a firm could serve as a good corporate
citizen, while in the meantime pursuing the growth of stockholder’s wealth.
Keywords: Business Ethics, Stakeholders, Corporate Social Responsibility, Firm Performance, Socially
Responsible Investment
1. Introduction
A firm operates to make profits in order to maximize
wealth for its stockholders. Since stockholder’s wealth
originates from the value of a firm, maximizing stock-
holder’s wealth is equivalent to maximizing firm value.
In the pursuit of increasing firm value, corporate opera-
tion, however, may result in the issues of business ethics
and morality. For example, a food company may mingle
artificial substance into its products for the purpose of a
better taste while its production complies with govern-
ment inspections and regulations but might potentially
harm human health in the long run due to accumulation
of the substance. These examples therefore lead to a
voice in society calling for reestablishing the value of
business ethics. Moreover, there are numerous accidents
regarding how a firm’s production process causes serious
concerns in environmental pollution and public safety.
With the rising consciousness of environmental protec-
tion and global warming, people are no longer satisfied
with the passive behavior of an ethical firm. Instead,
firms are expected to more proactively fulfill their cor-
porate social responsibility (CSR) as corporate citizens to
economy, society, and country. The demand for a firm’s
fulfilling its corporate social responsibility has not only
become an important issue but also a global common
consensus. Therefore, firms are expected to be cautious
about maintaining a balance between corporate growth
and social progress when pursing their financial per-
formance.
The importance of corporate social responsibility is
further enhanced by the changes of social status in recent
years. In the trend of globalization with numerous ongo-
ing mergers and acquisitions, the fortune of major stock-
holders is accumulated due to economy of scale and ex-
pansion of business scope, while those who could not
benefit from corporate mergers and acquisitions, on the
other hand, are exploited. The consequence is that the
789
Y. G. WANG
gap between the wealthy and the poor is worsened. Oh-
mae [1] thus argues the emergence of an M-shaped soci-
ety, which proposes that as the world economy develops
more into globalization, the rich people exploit their
knowledge advantages to rapidly accumulate fortune and
in the meantime the middle class is forced to fall into a
lower level of income due to the loss of their competitive
advantages. Consequently, in the wealth re-distribution
process, the numbers of the high-income households and
the low-income ones are both increased. As firms are
growing larger in size, firms are demanded to take more
social responsibility to reduce social conflicts.
As discussed earlier, the demand for environmental
protection, the emphasis of corporate governance, and
the changes in social status are the major factors that
force firms to take more social responsibilities. Due to
the increasing importance of corporate social responsi-
bility, international institutions thus embark on assessing
market performance of socially responsible firms. For
instance, Dow Jones & Company, Inc, established Dow
Jones Sustainability Indexes (DJSI) in 1999 and Finan-
cial Times of UK founded the Financial Times Stock
Exchange for Good Index (FTSE4Good) in 2001. Not
only the US and the UK, but also the other developed
countries have endeavored to establish a market mecha-
nism for evaluating a firm’s efforts in fulfilling their so-
cial responsibility. These mechanisms considerably en-
courage firms to increase their socially responsible in-
vestment (SRI) to meet expectations from the society.
Literature indicates that the incentives of a firm’s ful-
filling its corporate social responsibility are not only due
to social pressure or benevolence, but also based on more
practical reasons associated with firm performance. As
argued by Porter and Kramer [2], corporate social re-
sponsibility should be seen as one of core business strate-
gies in a firm, implying that the firm could benefit from
its social investment. Some studies suggest that when a
firm implements its corporate social responsibilities,
these benevolent actions could bring about employee’s
ethical behavior, thus contributing to a better organiza-
tional efficiency [3-5]. Other studies see corporate social
responsibility as the means of conducting marketing
strategies [6,7]. Maignan, Ferrell, and Ferrell [6] suggest
that most firms fulfill their corporate social responsibili-
ties because management believes that these corporate
actions could improve corporate image and strengthen
the effects of marketing tactics, thus having a positive
relationship with firm performance.
Continued from earlier research, this study aims to in-
vestigate how the fulfillment of corporate social respon-
sibility would impact on corporate stock performance.
For this research purpose, a corporate social responsibil-
ity index (CSRI), including three dimensions, i.e., eco-
nomic, social, and environmental dimensions, is con-
structed on the ground of the idea originated from Dow
Jones Sustainability Index. We then construct three CSR
portfolios, i.e., high CSR, medium CSR, and low CSR,
to compare their portfolio returns to those of benchmark
portfolios (market index, value stocks, and growth stocks)
in the short-run and the long-run. The data are sampled
from publicly-listed companies in Taiwan Stock Ex-
change (TWSE) and provided from Taiwan Economic
Journal (TEJ) for the period of 2001-2009.
In addition to this section of introduction, the rest of
the paper is given as follows: Section 2 provides litera-
ture review related to corporate social responsibility.
Section 3 states research methodology. Section 4 pro-
vides research result. Finally, the concluding remark is
given in Section 5.
2. Literature Review
2.1. Business Ethics and Corporate Social
Responsibility
The concept of corporate social responsibility is origin-
nated from the idea of business ethics and the expecta-
tion toward an ethical firm. Business ethics is also named
corporate ethics, which is first developed upon personal
ethics and morality and then extended to the application
in business situations. In other words, business ethics
concentrates on analyzing the problems in business ac-
tivities from the perspective of morality and ethics.
Vyakarnam, Baily, Myers, and Burnett [8] classified
ethical issues encountered by small and medium firms
into four categories: corporate activities, conflict be-
tween individual value and corporate demand, social
responsibility, and conflict between owner’s personality
and ethical issues. As suggested in [9], the issues of
business ethics could be fallen into one of the following
five categories: products, human resource, environment,
society and others. Rosenthal and Buchholz [10] pro-
posed that business ethics and environmental ethics
should be related to corporate social and environmental
responsibilities.
Although the concept of business ethics was similar to
that of corporate social responsibility, their differences
rested on the definition and scope. According to [11],
corporate social responsibility was defined as corporate
behavior associated with the fulfillment of business eth-
ics. In fact, there was a causal relationship between busi-
ness ethics and corporate social responsibility. However,
Ferrell and Geoffrey [12] argued that although both ideas
were similar, yet their implications were different in that
the conceptual scope of corporate social responsibility
was more comprehensively defined than business ethics.
Copyright © 2011 SciRes. ME
Y. G. WANG
790
Business ethics determined the acceptable standards of
business behaviors, while corporate social responsibility
was more broadly extended to corporate obligations and
commitments toward the benefits of society.
Regarding the definition of corporate social response-
bility, Davis and Blomstrom [13] suggested that corpo-
rate social responsibility reflects social expectation to-
ward firms. According to [14], corporate social response-
bility was also defined as social expectation to a firm
regarding how the firm would repay to the society. Wood
[15] further defined corporate social responsibility as the
allocation of corporate resources, which reflected how a
firm’s social behavior could satisfy social expectation
toward the firm. Recent studies (such as [16,17]) sug-
gested that corporate social responsibility was an exten-
sion of business ethics and management morality, which
should not only meet legal regulations, but also respond
to public pressure and social expectation. Summarized
from the literature, corporate social responsibility could
be defined as the principles of business ethics to maintain
the benefits of all company stakeholders. In this defini-
tion, corporate growth and social growth should be two
equivalently important goals pursued by a firm in order
to obtain sustainable development in economy.
Regarding the scope of corporate social responsibility,
Carroll [18] contended that corporate social responsibil-
ity should be built upon a four-level pyramid, as shown
in Figure 1. The bottom level of the pyramid was eco-
nomic responsibility, meaning that the fundamental so-
cial responsibility of a firm was to satisfy economic
needs in economy. Economic responsibility was the im-
portant base of implementation of other corporate social
responsibilities. Above economic responsibility, a firm
should fulfill its legal responsibility, which meant that
the firms should abide by the laws and follow the rules of
the game to uphold social justice. The third level of cor-
Figure 1. The pyramid of corporate social responsibility
(Carroll, 1991).
porate social responsibility was ethical responsibility,
meaning that a firm should comply with the principles of
business ethics in order to maintain peace in society. On
the top level of the pyramid was human responsibility,
which suggested that a firm should serve as a good cor-
porate citizen to improve overall living quality in human
society.
2.2. International Trends of Corporate Social
Responsibility
In the trend of globalization, the idea of corporate social
responsibility has drawn attentions in international capi-
tal markets. Many international organizations thought
highly of corporate social responsibility as a new corpo-
rate value by evaluating a firm’s socially responsible
investment (SRI) in society. For instance, Down Jones,
Stoxx and Sustainability Asset Management Co., in 1999,
constructed the first indexes in the world, Dow Jones
Sustainability World Indexes (DJSI World), attempting
to evaluate stock performance of socially responsible
firms. The screening standards of DJSI World were built
on corporate contributions to economy, society, and en-
vironment, as exhibited in Figure 2. Each dimension was
constructed by various variables to measure corporate
contributions to serve the particular purpose in the di-
mension.
Following the U.S., London Stock Exchange in the
U.K. also constructed Financial Times Stock Exchange
for Good Index Series (FTSE4GOOD) in 2001. FTSE4-
Good Index Series consisted of most global firms with
prominent implementation of social responsibility around
the world. The firms included in the index must be the
ones devoted to sustainable development of environment,
corporate governance of economy, and human rights of
international society. Since FTSE4Good Index Series
aimed to evaluate corporate performance of SRI, non-
Figure 2. The design concept of dow jones sustainability
index (DJSI).
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Y. G. WANG
financial firm performance associated with social re-
sponsibility was appraised. In addition to the U.S. and
the U.K., many other countries such as Australia, Malay-
sia, and Taiwan have attempted to construct their own
socially responsible index.
2.3. Corporate Social Responsibility and Firm
Performance
Since fulfilling corporate social responsibility was re-
garded as a socially responsible investment of a firm,
how the implementation of corporate social responsibil-
ity would impact on firm performance was of special
interest to academia. For example, Laczniak and Murphy
[3] argued that a firm, devoted to developing the culture
of business ethics, would avoid incurring individual, or-
ganizational, and social costs, thus leading to a better
firm performance. Sims and Kroeck [4] suggested that a
firm following the principles of business ethics could
enhance employees’ satisfaction and corporate identity,
both of which were beneficial to organizational per-
formance. Preston and O’Bannon [5] demonstrated that a
socially responsible firm would build a more complete
managerial system and firm performance thus could be
improved. In addition, since the benefits of stakeholders
would be considered in the decision-making process, the
firm would receive a higher satisfaction from stake-
holders. Furthermore, Verschoor [19] examined the fi-
nancial data of the S&P 500 firms and concluded that
corporate social responsibility has a causal relationship
with firm performance. It is found that corporate social
responsibility could possibly reduce corporate operation
costs or increase their competitive advantages.
Recent studies on CSR were directed to the linkage
with business marketing, suggesting that when a firm
fulfilled its corporate social responsibility, it would
greatly strengthen corporate image on the customer side,
thus improving firm performance. (See [6,7,20]) Both
Maignan and Ferrell [20] and Maignan et al. [6] argued
that the fulfillment of corporate social responsibility
would enhance marketing advantages and reinforce cor-
porate identity of stakeholders. This argument was too
conceptual to measure to what extent that a firm would
fulfill its corporate social responsibility. Chu and Yang
[7] therefore contended that corporate social responsibil-
ity and stakeholder’s benefits were closely related. To
measure the degree of fulfilling corporate social respon-
sibility, they further proposed that CSR could be com-
puted from contributions to stakeholders, which were
defined as government, employees, creditors, suppliers,
and public welfare. Based on the measures of contribu-
tions to stakeholders, the study revealed that CSR had a
positive impact on firm performance although the impact
direction of contributions to different stakeholders might
be inconsistent. Generally speaking, literature indicates
that there is significant and positive correlation between
corporate social responsibility and firm performance.
Although most literature on CSR suggested that a firm,
endeavoring to fulfill its social responsibility, might have
a better firm performance (see [6,19-21]), yet some stud-
ies took a different opinion. For instance, Mahapatra [22]
studied how external investors reflected the expenses of
pollution prevention firms to stock return, and suggested
that external investors behaved as rational economic in-
vestors instead of ethical investors. This meant that the
expenses of pollution prevention had a negative impact
on stock return. In addition, McWalliams and Siegel [23]
conducted regression analysis of corporate social respon-
sibility on firm performance, and found that corporate
social responsibility had no significant influence on firm
performance.
Recent studies on CSR were directed to see the im-
plementation of corporate social responsibility as a dy-
namic process of strategic investment in a firm. Peters
and Mullen [24] found that the effects of corporate social
responsibility could be accumulated and reinforced posi-
tively in the long-run, thus leading to a better firm per-
formance.
3. Research Methodology
Summarized from the proceeding section, corporate so-
cial responsibility could be regarded as socially respon-
sible investment (SRI) and strategic investment in a firm
from the perspectives of marketing identification and/or
strategic management. This study aims to answer the
question how stock performance is influenced when
firms fulfill their corporate social responsibility. We ap-
ply the style portfolio approach by forming three CSR
portfolios, examine the stock performance in both the
short-run and the long-run relative to bench portfolios,
and then test statistical significance of excess returns. As
the first step of the methodology, the corporate social
responsibility index (CSRI) is constructed on the ground
of three dimensions, i.e., economic, social, and environ-
mental, an idea originated from the Dow Jones Sustain-
ability Index (DJSI). Three portfolios according to the
CSRI, i.e., high CSR, medium CSR, and low CSR, are
established and rebalanced quarterly. Quarterly portfolio
returns and cumulative returns are computed to test sta-
tistical significance relative to those of benchmark port-
folios, i.e., market, value, and growth portfolios.
3.1. Corporate Social Responsibility Index
To construct our CSRI, we take the idea in [7] that the
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Y. G. WANG
792
fulfillment of corporate social responsibility could be
measured from socially responsible investment (SRI)
contributed to government, employees, creditors, suppli-
ers and public welfare. In addition, as suggested in [6],
corporate contribution to stockholders is the fundamental
social responsibility of a firm from the perspective of
economic responsibility. It is therefore included in the
CSRI variable. With regard to a firm’s contribution to
public welfare, intuitively a firm’s monetary donation the
purpose of public welfare would serve as an ideal meas-
ure for corporate contribution to public welfare. Since
the information is not required for a firm to disclose in its
financial statements nor it is available in all the published
data, we use the data of environmental events as inverse
measures for contribution to public welfare. The data-
base of environmental events in TEJ could be reorgan-
ized into two useful variables, one of which is the num-
ber of the events causing environmental pollution and
concerns and the other is the dollar amount that a firm is
fined by the government due to the environmental events.
Based on the discussion above, the CSRI variable is
therefore constructed on three dimensions, e.g., eco-
nomic, social, and environmental dimensions, which are
described by seven measurable variables. The framework
of constructing the CSRI is exhibited in Figure 3.
Since the specific measures and weights in the DJSI
World are not announced, our CSRI is constructed on the
idea of stakeholders and the basis of data availability.
We first define the economic dimension of corporate
social responsibility that a firm should make efforts to
repay to its funding sources, so the contributions to
stockholders and creditors are in this dimension. The
social dimension describes that a firm should attempt to
fulfill its social responsibility to other stakeholders. Un-
Figure 3. The framework of corporate social responsibility
index (CSRI). (A) contributions to creditors; (B) contribu-
tions to stockholders; (C) contributions to government; (D)
contributions to employees; (E) contributions to suppliers;
(F) environmental variable 1; (G) environmental variable 2.
der the consideration of data availability, we include the
contributions to government, employees, and suppliers in
the social dimension. In addition, the environmental di-
mension is defined as the measures that a firm contrib-
utes to protect the environments, including both natural
and human environments. Since it extremely difficult to
monetarily quantify the efforts of a firm in environ-
mental protection, we use two variables to measure the
contributions of a firm in this dimension. The first one
depicts how a firm endeavors to avoid environmental
hazards and pollutions, i.e., the number of tickets (in-
cluding warnings) that a firm receives from the govern-
ment due to causing environmental hazards, while the
second one describes the total dollar amount fined by the
government due to the environmental incidents.
3.2. Variable Definitions
Since the specific measures and weights in the DJSI
World are not announced, our CSRI is constructed on the
idea of stakeholders and the basis of data availability.
We first define the economic dimension of corporate
social responsibility that a firm should make efforts to
repay to its funding sources, so the contributions to
stockholders and creditors are in this dimension. The
social dimension describes that a firm should attempt to
fulfill its social responsibility to other stakeholders. Un-
der the consideration of data availability, we include the
contributions to government, employees, and suppliers in
the social dimension. In addition, the environmental di-
mension is defined as the measures that a firm contrib-
utes to protect the environments, including both natural
and human environments. Since it extremely difficult to
monetarily quantify the efforts of a firm in environ-
mental protection, we use two variables to measure the
contributions of a firm in this dimension. The first one
depicts how a firm endeavors to avoid environmental
hazards and pollutions, i.e., the number of tickets (in-
cluding warnings) that a firm receives from the govern-
ment due to causing environmental hazards, while the
second one describes the total dollar amount fined by the
government due to the environmental incidents.
3.2.1. Corporate Social Responsibility Index
As mentioned earlier, our index of corporate social re-
sponsibility, CSRI, constitutes economic, social, and en-
vironmental dimensions. The economic dimension, de-
noted by Eco, consists of corporate contributions to
funding sources such as stockholders and creditors. The
social dimension, denoted by Soc, is defined as corporate
contributions to the other stakeholders of a company,
including the contributions to government, employees,
and suppliers. The environmental dimension, denoted by
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Y. G. WANG
Env, is comprised of two specific variables in the TEJ
database, the number of tickets issued by the government
due to causing environmental hazards and the dollar
amount of total fines due to the events of environmental
hazards. The computational definitions of the seven
measures of corporate social responsibility, three dimen-
sions, and the combined index are given below:
1) Contributions to Stockholder (SHCI)
The contributions to stockholders, denoted by SHCI,
are referred to as the percentile ranking of earnings per
share (EPS). The formula of SHCI is shown below:

NI PSD
SHCIScore EPSScoreOS




(1)
where Score represents the percentile ranking of EPS,
EPS is earning per share,
NI is net profit after tax,
PSD is dividend of preferred stocks,
OS is the weighted average outstanding shares of
common stock.
2) Contributions to Creditor (CCI)
The contributions to creditors, denoted by CCI, are
measured by the percentile ranking of total interest ex-
pense, scaled by total debt. The formula of CCI is given
as follows:

I
E
CCIScore IERScoreDebt


(2)
where IER is the ratio of total interest expense, IE, to
total debt, Debt.
3) Contributions to Government (GCI)
The contributions to the government, denoted by GCI,
are described by the percentile ranking of total tax ex-
pense, scaled by sales revenues. The formula of GCI, is
given below:

TE
GCIScore TERScoreSales


(3)
where TER denotes the ratio of total tax expense, TE, to
company sales, Sales.
4) Contributions to Employees (ECI)
The contributions to employees, denoted by ECI, are
defined as the percentile ranking of total salary and bene-
fits expenses per employee, scaled by sales. The formula
of ECI is given below:

/SE EN
ECIScore ASERScoreSales


(4)
where ASER stands for salary and benefit expenses, SE,
divided by the number of employees, EN, scaled by
sales.
5) Contributions to Suppliers (SCI)
The contributions to suppliers, denoted by SCI, are de-
fined as the percentile ranking of annual purchase, scaled
by sales. The formula of SCI is shown below:

PC
SCIScore PCRScoreSales


(5)
where PCR denotes the ratio of annual purchase, PC, to
sales.
6) Environmental Variable 1 (EDI)
The first environmental variable, denoted by EDI, is
scored from the number of events, ED, that a firm causes
environmental hazards in a year. The data are collected
from the Environmental Incident Database in the TEJ
and are computed from the inverse percentile ranking of
the number of tickets (including warnings) in a year that
a firm receives from the government due to causing en-
vironmental hazards. This means that the fewer incidents
that a firm causes environmental hazards, the higher EDI
is. The formula of EDI is shown below:
EDIScore ED
(6)
where Score
stands for the inverse percentile ranking
and ED denotes the number of incidents that a firm
causes environmental hazards in a year.
7) Environmental Variable 2 (FED)
The second environmental variable, denoted by FED,
is the inverse percentile ranking of the dollar amount that
a firm is fined by the government due to causing envi-
ronmental hazards, denoted by EF. Similar to EDI, the
score of FED is higher as the dollar amount of fines, EF,
is lower. The formula of FED is given as follows:

F
EDScore EF
(7)
8) Score of Economic Dimension (Eco)
The score of economic dimension, denoted by Eco, is
the average of SHCI and CCI, as shown below:
2
SHCI CCI
Eco
(8)
9) Score of Social Dimension (Soc)
The score of social dimension, denoted by Soc, is the
average of GCI, ECI, and SCI. The formula of Soc is
shown below:
3
GCIECI SCI
Soc 
(9)
10) Score of Environmental Dimension (Env)
The score of environmental dimension, denoted by
Env, is the average of EDI and FED. The formula of Env
is given below:
2
EDI FED
Env
(10)
11) Corporate Social Responsibility Index (CSRI)
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794
The index of corporate social responsibility, denoted
by CS RI , is computed from the average of the scores of
three dimensions, i.e., Eco, Soc, and Env. The formula of
CSRI is given as follows:
3
Eco Soc Env
CSRI 
(11)
Three CSR portfolios are constructed according to the
CSRI scores. That is, the high CSR (denoted by HCSR)
portfolio is chosen from the top 30 stocks of the CSRI in
each quarter, the medium CSR (denoted by MCSR) port-
folio is the middle 30 stocks of the CS RI , and the low
CSR (denoted by LCSR) portfolio is the lowest 30 stocks
of the CSRI. Three portfolios are rebalanced quarterly to
keep portfolio characteristics consistent. In addition,
three benchmark portfolios are also chosen to test statis-
tical significance of three CSR portfolios. To maintain
the characteristic of CSR, the CSR portfolios are con-
structed by the decreasing weights. Specifically, the
weight of the i-th stock is computed as follows:
1
1
in
j
ni
W
j
(12)
3.2.2. Benchmark Portfolios
To test statistical significance of stock returns in the style
portfolios, we choose market, value, and growth portfo-
lios as the benchmark portfolios. The definitions of the
benchmark portfolios are given below:
1) Market
We use the market index to proxy stock return of the
market portfolio, denoted by M. Market return, Rm, is
calculated as follows:
1t
tt
t
X
X
Rm X
(13)
where X denotes the TWSE Total Market Index.
2) Value Portfolio
The value portfolio, denoted by V, is constructed and
based on three commonly used value ratios, i.e., price-to-
earning ratio (PER), price-to-book ratio (PBR), and price-
to-sales ratio (PSR). The value score (Value) is computed
from the inverse percentile ranking scores of three value
ratios and the value portfolio is chosen from the top 30
stocks of the value score. The definition of Valu e is
given below:


3
Score PERScore PBRScore PSR
Value 

(14)
3) Growth Portfolio
The growth portfolio, denoted by G, is constructed and
based on three commonly used growth ratios, i.e., asset
growth (AG), equity growth (EG), and sales growth (SG).
The growth score (Growth) is computed from the per-
centile ranking scores of three growth ratios and the
growth portfolio is chosen from the top 30 stocks of the
growth score. The definition of Growth is given below:

3
ScoreAGScore EGScore SG
Growth 
(15)
It is important to point out that the portfolio weights in
both of the value and growth portfolios are formed in the
same way as those of the CSR portfolios in order to keep
the portfolio characteristics.
3.2.3. Stock Re turns
In the study, two measures of stock returns are adopted,
i.e., quarterly return, QR, and cumulative return, CR. The
former is used to represent stock performance in the
short-run, and the latter does that in the long-run. QR is
defined as follows:
,,
1
n
tit
i
QRW R
it
(16)
where Ri,t denotes the return of stock i at time t.
In addition, CR is calculated as follows:

1
1
1
tt
tj
j
CR QR

1

B
(17)
3.3. Research Hypotheses
To test whether quarterly returns of three CSR portfolios
are significantly higher than those of bench portfolios,
the null hypothesis (H0) and the alternative hypothesis
(H1) are established as follows, respectively:
0:S
H
QR QR (18)
1:SB
H
QR QR (19)
In addition, to test statistical significance of cumula-
tive returns, we set up the null hypothesis (H0) and the
alternative hypothesis (H1) as follows, respectively:
0:SB
H
CR CR (20)
1:SB
H
CR CR (21)
To test statistical significance of quarterly returns and
cumulative returns, a method of one-sided, pair-wise t
statistic testing is applied for this purpose. For the ease of
understanding, all the hypotheses of interest, each of
which includes two sub-hypotheses to test statistical sig-
nificance, are summarized in Table 1.
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Y. G. WANG
Table 1. Research hypotheses.
Hypothesis Sub-HypothesisNull Hypothesis Alternative Hypothesis
H1 H1-1 QRHCSR QRM QRHCSR > QRM
H1-2 CRHCSR CRM CRHCSR > CRM
H2 H2-1 QRHCSR QRV QRHCSR > QRV
H2-2 CRHCSR CRV CRHCSR > CRV
H3 H3-1 QRHCS R QRG QRHCSR > QRG
H3-2 CRHCSR CRG CRHCSR > CRG
H4 H4-1 QRMCSR QRM QRMCSR > QRM
H4-2 CRMCSR CRM CRMCSR > CRM
H5 H5-1 QRMCSR QRV QRMCSR > QRV
H5-2 CRMCSR CRV CRMCSR > CRV
H6 H6-1 QRMCSR QRG QRMCSR > QRG
H6-2 CRMCSR CRG CRMCSR > CRG
H7 H7-1 QRLCSR QRM QRLCSR > QRM
H7-2 CRLCSR CRM CRLCSR > CRM
H8 H8-1 QRLCSR QRV QRLCSR > QRV
H8-2 CRLCSR CRV CRLCSR > CRV
H9 H9-1 QRLCSR QRG QRLCSR > QRG
H9-2 CRLCSR CRG CRLCSR > CRG
The data of the study is sampled from publicly listed
companies of Taiwan Stock Exchange and obtained from
Taiwan Economic Journal for the period of 2001-2009.
Since style portfolios are rebalanced quarterly, there are
36 quarters in the period of the study. In addition, firms
in the financial industry are subject to different account-
ing standards and market regulations, so they are ex-
cluded from the sample to avoid systematic bias.
4. Research Results
4.1. Descriptive Statistics
Descriptive statistics are conducted on the sample to
screen data characteristics and distributions. Descriptive
statistics of all variables are displayed in Table 2.
As shown in Table 2, the mean, median, and standard
deviation of EPS in the economic dimension are 1.901,
1.340, and 3.613, respectively. Since EPS ranges from
Table 2. Descriptive statistics.
DimensionsVariables Mean Median S.D. MaxMin
EPS 1.901 1.340 3.613 47.850–13.24
Economic
IER 0.113 0.111 0.112 0.3270.000
TER 0.015 0.008 0.048 1.093–0.926
ASER 0.041 0.040 0.035 0.7740.010
Social
PCR 0.223 0.148 0.411 9.3020.050
ED 0.179 0.000 0.616 15.0000.000
EnvironmentalEF
(in NT $ 1,000) 111.08 18.000 214.85 3,0500.000
Eco 0.498 0.501 0.163 0.9560.002
Soc 0.489 0.489 0.177 0.9960.014
CSR
Dimensions
Env 0.500 0.500 0.205 1.0000.001
CSR IndexCSRI 0.496 0.497 0.182 0.9840.005
QRHCSR 0.046 0.052 0.087 0.216–0.210
QRMCSR 0.030 0.029 0.127 0.407–0.246
CSR
Portfolios
QRLCSR 0.020 0.031 0.105 0.264–0.210
QRM 0.034 0.048 0.153 0.545–0.244
QRV 0.085 0.076 0.127 0.359–0.176
Benchmark
Portfolios
QRG 0.041 0.060 0.128 0.386–0.264
13.240 to 47.850, it appears that profitability in the
sample firms is quite diverse. In addition, the mean, me-
dian, and standard deviation of IER are 0.113, 0.111, and
0.112, respectively, indicating that the overall debt does
not seriously burden firms in the sample. Besides, the
minimum value of IER is 0, meaning that there are some
companies operating unleveredly.
The social dimension consists of three variables, TER,
ASER, and PCR. The mean and median of corporate tax
rate, TER, are 0.015 and 0.008, indicating that the actual
corporate tax rate, on average, in Taiwan is not very high
compared to other developed countries. In addition, the
mean, median, and standard deviation of ACER are 0.041,
0.040, and 0.035, respectively. The low average salary
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796
rate indicates that most firms in Taiwan are not quite
labor-intensive. In contrast, the mean, median, and stan-
dard deviation of PCR are 0.223, 0.148, and 0.411, re-
spectively, suggesting that purchase would accounts for a
large part in the cost structures of most firms.
The environmental dimension consists of two vari-
ables, ED and EF. The mean, median, standard deviation,
max, and min of ED are 0.179, 0.000, 0.616, 15.000, and
0.000, and those of EF are 111.08, 18.000, 214.850,
3050, and 0. These statistics indicate that there is a large
difference for firms causing environmental concerns.
Some firms never commit any incidents of environ-
mental protection, while another would violate up to 15
times of environmental regulations in a year. The fines of
these incidents therefore range from 3,050,000 to 0 NT
dollars.
The mean, median, standard deviation, max, and min
of CSR I are 0.496, 0.497, 0.182, 0.984, and 0. Since the
method of percentile ranking is applied to score the cor-
porate social responsibility index, it follows that CSRI is
quite close to uniformedly distributed.
Both quarterly returns and cumulative returns over the
study period are demonstrated in Figure 4 and Figure 5,
respectively, to exhibit stock performance of all style
portfolios. As shown in Figure 4, in the period the mar-
ket appears to have three major troughs (2001, 2002, and
2008) and three major peaks (2001, 2002, 2003, and
2009). Also, it is worth noting that in Figure 5 the value,
high CSR, and growth portfolios outperform the market,
yet this needs conducting hypothesis testing.
4.2. Hypothesis Testing
As mentioned earlier, to test statistical significance
whether the CSR portfolios outperform the benchmark
portfolios, a method of one-sided, pair-wise t statistic
Figure 4. Quarterly returns of all style portfolios.
Figure 5. Cumulative returns of all style portfolios.
797
Y. G. WANG
testing is applied. The results are exhibited in Table 3.
As shown in Table 3, all the hypotheses testing the
significance of excess returns of the CSR portfolios are
rejected, meaning that there are no significant excess
returns of the three CSR style portfolios relative to the
benchmark portfolios. However, Table 3 indicates that
the t statistics of the high CSR portfolio relative to mar-
ket (H1-2) and the growth portfolio (H3-2) are 5.4300 (p
< 0.01) and 5.3445 (p < 0.01), respectively, thus reject-
ing the null hypothesis and accepting the alternative hy-
pothesis. This means that the high CSR portfolios out-
perform the market and the growth portfolio in the long-
run in term of cumulative returns. By contrast, stock per-
formance of both the MCSR and LCSR portfolios is in-
significant in both the short-run and the long-run. These
results reveal that more socially responsible firms could
perform better than less socially responsible firms in
stock market.
Since the cumulative returns for the HCSR, M, and G
portfolios over the study period are 4.4713, 2.3101, and
3.2092, respectively, the annualized return for the three
portfolios are 0.1811, 0.0975, and 0.1383, respectively1.
This result indicates that the high CSR portfolio on av-
erage has a higher excess return of 8.36% and 4.28%
relative to the market and the growth portfolio, respec-
tively. It is possible that socially responsible firms may
have better corporate image perceived by investors, thus
Table 3. The results of hypothesis testing.
Hypothesis Sub-Hypothesis t Statistic p Value
H1-1 0.6034 0.2751
H1 H1-2 5.4300 0.0000**
H2-1 –3.3537 0.9990
H2 H2-2 –5.8678 0.9999
H3-1 0.5499 0.2930
H3 H3-2 5.3445 0.0000**
H4-1 –0.2858 0.3883
H4 H4-2 –4.0736 0.0001
H5-1 –4.8971 0.9999
H5 H5-2 –6.0162 0.9999
H6-1 –1.1296 0.1332
H6 H6-2 –7.5288 0.9999
H7-1 –0.5163 0.3044
H7 H7-2 –7.7140 0.9999
H8-1 –2.9650 0.9972
H8 H8-2 –6.1386 0.9999
H9-1 –0.9624 0.1712
H9 H9-2 –8.1043 0.9999
leading to better stock performance. Therefore, our result
finds evidence supporting the CSR effect in Taiwan.
Since the impact is significantly positive, it is concluded
that a social investment to a firm is as important as a
capital investment. Just as suggested by Porter and
Kramer [2], a firm should regard a socially responsible
investment as one of its core business strategies.
In addition, our results also indicate that the value
portfolio has the highest stock returns over the other style
portfolios in both the short-run and the long-run. The
annualized return is calculated to be 34.78%, signifi-
cantly higher than that of the CSR, the market, and the
growth portfolios. Thus, this result finds evidence sup-
porting the value effect in Taiwan.
5. Conclusions
In the world economy on the trend of increasing global-
ization, value maximization is no longer the only corpo-
rate goal for a firm. A successful, responsible firm should
eye on corporate growth while in the meantime rigor-
ously endeavoring to enhance social growth. In this new
definition of dual corporate goals, a firm should take
their social responsibility to all the corporate stake-
holders, including stockholders, creditors, employees,
suppliers, government and environment. In particular, a
socially responsible firm should not only focus on tradi-
tional issues of business ethics, but also on how they
could contribute to corporate stakeholders in order to
advance social growth. Therefore, the fulfillment of cor-
porate social responsibility should be re-defined in a
more comprehensive manner to include proactive con-
tributions to economy, society, and environment.
This study is based upon the framework of Dow Jones
Sustainability Index (DJSI) and the arguments suggested
in [6,7]. The former is built upon the idea of measuring
the degree to which a firm fulfills its corporate social
responsibility from the aspects of its contributions to
economy, society, and environment, while the latter pro-
poses that the measurement of a firm’s fulfilling its cor-
porate social responsibility should consider corporate
contributions to stakeholders, such as government, em-
ployees, creditors, and suppliers. In this study, the con-
tributions to stockholders and public welfare are also
integrated into our framework to measure a firm’s ful-
fillment of corporate social responsibility. Therefore, our
framework of measuring corporate social contributions is
built upon economic, social, and environmental dimen-
sions. The economic dimension measures corporate con-
tributions to financial provisions such as stockholders
and creditors. The social dimension gauges corporate
contributions to the other corporate stakeholders, such as
government, employees, and suppliers. Finally, the en-
1The annual return is calculated from the following equation:

1
11
t
tt
AR CR 
where AR denotes the annualized return.
Copyright © 2011 SciRes. ME
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798
vironmental dimension quantifies a firm’s efforts to re-
duce environmental hazards. Due to the difficulty of data
collection, the environmental dimension is measured
inversely from the number of environmental hazards and
the fines due to the violations.
Based on our framework for evaluating the fulfillment
of corporate social responsibility, the study aims to in-
vestigate the impact of fulfilling corporate social respon-
sibility on corporate stock performance. Specifically, we
argue that when a firm makes efforts to fulfill its social
responsibility, it would not only increase its socially re-
sponsible investment, but also improve its corporate im-
age so as to attract interested investors in the stocks, thus
causing a favorable stock performance. Sampled from
Taiwan publicly listed firms in the period of 2001-2009,
the study is thus far the first one empirically examining
the impact of corporate social responsibility on stock
performance by the style portfolio approach.
Our results find supporting evidence that when a firm
endeavors to fulfill its corporate social responsibility, it
has a positive impact on stock performance, relative to
the market and the growth portfolios. The implication is
that the implementation of corporate social responsibility
does not necessarily result in additional operating costs
and/or expenses. On the contrary, a socially responsible
firm may be welcome by investors due to better corpo-
rate image, thus having a positive impact on stock re-
turns. The findings are consistent with the conclusions in
[5-7,19,21,24].
Generally speaking, our findings indicate that fulfill-
ing corporate social responsibility does not necessarily
contradict with the goal of maximizing firm value. Since
the implementation of corporate social responsibility is
positively associated with firm performance, manage-
ment should treat socially responsible investment as a
core business strategy, which would pave a way for a
firm’s perpetual growth. More specifically, a firm could
serve as a good corporate citizen, while in the meantime
pursuing the growth of stockholder’s wealth.
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