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Abstract
This study examines the impact of corporate social responsibility (CSR) in the tourism industry using seasoned equity offerings (SEOs) from 1992 to 2015. We show that tourism SEO issuers engaging in CSR activities experience less negative market reactions to SEO announcements. The findings also reveal that the negative reactions around SEO announcements are significantly lessened for tourism firms with better CSR performance in the context of high information asymmetry, because such activities serve as an ethical commitment to outside investors, and thus align the interests between SEO issuers and outside investors, which eventually mitigates negative market reactions to SEO announcements. Overall, these results indicate that tourism issuers with better CSR performance are able to reduce the agency costs and adverse selection problem for uninformed investors in the process of issuing SEOs.
Notes
1 According to the US Travel Association, 79% of adults in the US consider environmental issues when making travel decisions, such as carbon emissions and global warming. Moreover, three of the largest Las Vegas tourism businesses, MGM Resorts International, Caesars Entertainment, and Las Vegas Sands Corp, recently announced comprehensive plans to address such issues (Travel Weekly, 10 October 2012).
2 The market-adjusted returns are defined as the difference between individual stock returns and the returns of a value-weighted market portfolio.
3 The strength scores in the KLD database represent the aggregate score of positive events related to CSR activities in different categories, whereas the concern scores mean the aggregate score of negative events related to CSR activities in different categories.
4 The industry types are classified based on the 48 industries in Fama and French (Citation1997).