![]() ![]() From the perspective of value enhancement, CSR can enhance shareholder wealth. In particular, the question as to why firms must invest in CSR has been a subject of debate over the past 20 years. Some studies identify a positive relationship, whereas others represent a negative or no relationship. Related studies examining the relationship between CSR and profitability represent relatively mixed results. When the investment threshold is higher, the options value approximates 0 regardless of CSR costs. ![]() In addition, the findings of the numerical analysis verify that an industry boom with rising product prices is conducive to companies’ investments in CSR. The optimal timing to invest CSR can be an answer to the inconsistent problem regarding CSR performance. In this paper, a real options approach is applied to derive the closed-form solution of CSR investments, CSR options value, and the threshold for implementing CSR. This model, being different from the standard Black–Scholes formula, offers more flexibility to verify a company’s strategy. First, this paper constructs a dynamic model in an uncertain environment to explain companies’ behavior regarding CSR investments. Compared to the related literature, this paper contributes to the literature in several ways. In addition, numerical analyses and results are presented to verify the established model. Moreover, the real options approach is applied to derive the company valuation of the CSR investments and determine the threshold for implementing CSR. This study assumes that sales profits follow a stochastic process and that company value varies with sales profits. ![]() Specifically, the value of CSR options facilitates determining whether to invest in CSR, and the optimal threshold for implementing CSR indicates when to invest in CSR. This study elucidates the value of CSR and the decision to invest in CSR. The main purpose of this study is to construct a dynamic CSR valuation model. A real options approach is therefore a great method when facing the problem of uncertainty. Especially, the optimal timing to invest in CSR can be derived from the real options approach, and that can help the firms to make the best decisions relating to CSR. A real options approach is suitable to value the uncertainty of CSR investments. Although implementing CSR has a positive impact and is a current trend, CSR investors could suffer a great loss. This inconsistency shows that the performance of CSR investments is complicated and uncertain. Studies including those of McWilliams and Siegel and Krüger consider that the results of CSR investments are inconsistent. The relationship between CSR and corporate performance has been widely investigated. Nevertheless, CSR expenditures cannot be ignored. CSR implementation could increase brand awareness and corporate reputation, thus benefiting long-term corporate development. Previous studies on the correlation between CSR and corporations’ financial performance have mainly investigated whether corporate investment on CSR can enhance or create corporate value and effectively improve corporate performance. The rise of environmental awareness has also prompted investors to approve of environment-related CSR activities taken by businesses. In the past two decades, CSR has been increasingly emphasized by government agencies, businesses, and the public. ![]()
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