Good for the world, good for shareholders: Study finds social responsibility means less risky stock prices

Firms that make greater investments in corporate social responsibility (CSR) initiatives see less risk in their stock prices during economic downturns, according to a new study from the University of Iowa.

The research, by Art Durnev, assistant professor of finance in the Tippie College of Business, suggests that those companies have greater brand loyalty, so customers keep buying their products and paying a premium for them, regardless of the overall economy. That stability in turn reduces those firms' costs of equity capital, further reducing its overall risk.

CSR has become an increasingly important part of business in recent years, as more customers look to buy from companies with practices that match their own values, especially when it comes to environmental issues. While research has shown that companies like Patagonia and Ben & Jerry's have increased brand loyalty because of their extensive CSR initiatives, Durnev says little research has been done to see how that loyalty affects firms' stock prices.