The Value Relevance of Corporate Social Responsibility (CSR) Expenditure: Evidence from Regulatory Decisions

We examine the value relevance of the corporate social responsibility (CSR) expenditure of Bangladeshi banks from 2007–2014 in response to a regulatory directive on banking firms’ engagement in CSR activities. We find a positive association between CSR expenditure and a firm’s market value. Evidence of an inverse U-shaped curvilinear association between CSR expenditure and market value suggests that the impact of CSR expenditure on a firm’s market value has a certain limit. We also document that unexpected or abnormal components of CSR expenditure comprise value-relevant information. Our study provides empirical evidence to support the value relevance of CSR expenditure as an explanation for why firms should invest in CSR and why they should inform various stakeholders about their CSR activities.