The Effects of Racial Equity Pledge Making on Firms' Stock Valuation Open Access

Taber, Andrew (Spring 2022)

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In the wake of the Summer 2020 Black Lives Matter movement, firms made over $67 Billion dollars worth of pledges to racial equity. This paper explores the effect of these pledges as a representation of racially focused positive Corporate Social Responsibility (CSR) activity on the market valuation of the firms that made them using event study and difference-in-differences designs to study the relationship between CSR and perceived firm performance and profitability. The event study reveals a short term negative effect on logged firm stock value, followed by a generally positive trend over the ten weeks following making a pledge. The difference-in-difference results reveal a statistically insignificant -0.84% decrease in stock value for firms in the 10 weeks following a pledge. Heterogeneity tests show that a short-term positive effect may appear for firms that made smaller pledges, suggesting that investors might value these racial equity pledges when they are not too costly. Robustness and randomization checks validate these findings. 

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List of Figures

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1. Introduction - 1

2. Data - 10

3. Methodology - 15

4. Results - 19

5. Robustness - 23

6. Conclusion - 26

7. Bibliography - 28

8. Appendix - 31

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