The Unintended Effect of Corporate Social Responsibility Performance on Investors’ Estimates of Fundamental Value

opportunities. One of the key issues relates to proxies. As is noted by the author, both CEM and CFP can be measured by various proxies. Some of these proxies are closely related with others while some are not (e.g. stock price is a function of accounting earnings, which is well established in equity valuation theory). Also, different proxies are of different quantitative metrics or measuring different aspects of the subject matter. As such, treating all studies using different proxies the same way may not be ‘fair’ and applying a single coefficient may not be very meaningful and interpretable. I believe a better understanding of what different proxies measure and how they are interrelated needs to be developed and incorporated into the implementation of the analysis. For instance, transformation techniques could probably be used to transform market-based measures of CFP to accounting-based measures of CFP. However, I could imagine that these transformations themselves would not be an easy task and probably requires expertise from other research areas. Moreover, under certain circumstances, such transformations are almost impossible (for instance, I do not see a way to transform Toxic Release Inventory emission indicators to environmental expenditures). Hence, refining the analysis specification in this respect could be an area of contribution. Another point that attracts my attention is the possibility of alternative interpretations of the results. A case in point is the conclusion that CEM delivers weaker impacts on market-based measures than on accounting-based measures. Another possible hypothesis to explain the observation is due to the different time horizons embedded in marketand accounting-based measures. This is perhaps due to the time horizon used by existing studies. Market indicators are based on expectations rather than results, which some of the CEM proxies tend to measure. Hence, long before the impact is evident through accounting numbers, the associated competitive advantage, if any, has already been pre-empted by market anticipations. Hence, to fully account for the impact of CEM activities on market-based performance measures, perhaps it is necessary to see how the market responds when the information of CEM becomes available to the public rather than when the outcome is delivered. Event-study technology may be useful in this respect to discriminate the alternative interpretations. Finally, to reach more meaningful empirical studies, theoretical model formalisation could be very important. In quantitative capital market research, well-formalised theoretical models, which clearly channel various factors to the dependent variable mathematically, often guide the structures of the design of empirical models, reduce the ambiguity of interpretations of results, and pre-indicate the direction of causality (e.g. one might argue that the association found between CEM and CFP is due to the fact that financially strong companies can better afford CEM activities, which reverses the causality adopted by the author’s interpretation).