Summary of the Doctoral Dissertation entitled:

COLLEGIUM OF BUSINESS ADMINISTRATION Karolina Łudzińska, M.A. Summary of the Doctoral Dissertation entitled: Corporate Social Responsibility and Enterprise Value on Capital Markets Doctoral dissertation written under the guidance of Prof. Barbara Dobiegała Korona, Ph.D. Warsaw, 2016

The doctoral dissertation entitled Corporate Social Responsibility and Enterprise Value on Capital Markets has been devoted to the issue of corporate social responsibility as seen from the perspective of value creation for owners and shareholders as well as other groups of stakeholders. Its fundamental idea is based on the belief that an enterprise that operates in the interest of not just its owners, but also other stakeholders, has at its disposal resources to build value in a constant and sustainable manner, contributing to the achievement of its own economic, social and environmental objectives as well as the well-being of its immediate surroundings and society as a whole. For the purposes of this dissertation, the term corporate social responsibility has the meaning proposed by Klimek (2014: 270), which states that a responsible and ethical business is a strategic long-term approach based on the principles of social dialogue and seeking solutions beneficial for both: the enterprise and its entire immediate surroundings, employees, all stakeholders and the community in which the company operates. At the same time, corporate social responsibility is understood and presented in a holistic way, as a coherent whole of its different aspects selected adequately to the enterprise s needs and conditions, which in effect lead to the co-creation of value by and for all stakeholders and the society as a whole. Over the last decades, as the concept of corporate social responsibility was being developed in business approaches of companies, both in theory and in practice, the concept of value creation as the primary objective of the enterprise s operation was developing as well. Initially, literature on the subject was dominated by the consensus that value should be created primarily for owners and shareholders [Rappaport, 1986], as shareholders increase the value of all claims [Copeland, Koller, Murrin, 1997]. The latest studies on maximising enterprise value stipulate to also take into consideration the interests of other groups of stakeholders, rather than only the interests of owners and shareholders, as... the purpose of a company is to build value, and thus bring benefits, for all stakeholders of an enterprise and the society as such. 1 A manifestation of the implementation of the concept of corporate social responsibility on capital markets is the idea of Sustainable and Responsible Investment (SRI). 2 The SRI 1 D. Kopycińska, Koncepcja społecznej odpowiedzialności firmy - poezja teorii i proza życia, in: W. Gasparski, J. Dietl (scientific ed.), Etyka biznesu w działaniu. Doświadczenia i perspektywy, Wydawnictwo Naukowe PWN, Warsaw, 2001. p. 188 2 Sustainable and Responsible Investment is an investment discipline that takes into consideration environmental, social and corporate governance criteria (the so-called ESG criteria), so as to generate long-term 2

phenomenon itself, much like concepts and theoretical approaches describing it, still remains in development. What they have in common, however, is the growing awareness of possible risks and long-term socially and environmentally negative effects of irresponsible investing among investors and shareholders of enterprises 3. The global SRI market is experiencing dynamic growth, and the sum of assets managed in a sustainable and responsible manner worldwide is growing with each passing year 4. In 2012, this sum amounted to USD 13.57 trillion, which represents approximately 10% of global assets under management which totalled USD 130 trillion in the same year 5. As far as global literature is concerned, there is a relatively small number of studies relating social responsibility to enterprise value [Garriga, 2014]. Thus far, they have been focused mainly on studying relations between corporate social performance and corporate financial performance. In light of the above, it has been noted that there is a research gap in studies on the concept of corporate social responsibility and its potential impact on the development of enterprise value, especially on capital markets. In addition, by conducting theoretical studies on source literature and exploratory studies on corporate social investments market, it has been indicated that studies conducted thus far on the impact of corporate social responsibility on corporate performance efficiency and SRI market efficiency were conducted, and their results discussed, mainly from the investor s perspective (with the investor understood as a potential future shareholders), rather than from the perspective of the owner or (current) shareholder. Having regard to how the capital market operates, it should be noted that such perspective does not always lead to the same conclusions, as the perspective of an investor who expects the highest possible rate of return on invested capital differs from the perspective of an investor who seeks to purchase the enterprise s securities at the lowest possible share price, and the perspective of the owner and shareholder who seeks to maximise the enterprise value, i.e. to maximise the price of shares in trading and thus its market capitalisation value. In relation to the above, the performance of studies focused on identifying the relations between corporate social responsibility and building enterprise value on the capital market, from the perspective of owners, shareholders and other stakeholders, constitutes the author s original contribution to science. and financially competitive returns on investments and socially positive effects thereof, as cited in: Forum for Sustainable and Responsible Investment, http://www.ussif.org/ [25.06.2014] 3 http://www.eurosif.org [20.06.2014] 4 According to studies conducted by the Forum for Sustainable and Responsible Investment, USSIF (http://www.eurosif.org) and EuroSIF (www.ussif.org) 5 PwC data: http://www.pwc.com/us/en/press-releases/2014/pwc-global-assets-under-management.jhtml [25.06.2014] 3

As part of the dissertation, it has been assumed that its subject matter is the concept of corporate social responsibility as a component in building enterprise value on capital markets. The main study problem has been formulated in the form of a question: Does the implementation of the concept of corporate social responsibility by an enterprise contribute to building its value on a capital market? The purpose of the studies was to identify the possible positive correlation between the implementation of the corporate social responsibility concept and building enterprise value on capital markets. The dissertation s additional objectives were to: systematise the understanding, application and definition of corporate social responsibility; summarise current stages of its development; review social conditions underpinning the operation of enterprises, including stakeholders theories; identify and systematise modern sources for building enterprise value and understanding the concept of enterprise value and its measures; examine possible relations between building value and the concept of corporate social responsibility, and to present the scale of the phenomenon of sustainable and responsible investment both worldwide and in Poland. In relation to the adopted assumptions, the study problem was presented in the form of the leading thesis of the dissertation and supplementary theses as well as associated research hypotheses. The leading thesis has been formulated as follows: Corporate social responsibility co-creates enterprise value on capital markets. Supplementary theses and study hypotheses have been formulated accordingly to conducted empirical studies, which have been conducted in two stages. The 1 st stage involved the implementation of the research project titled Corporate social responsibility and enterprise value from the perspective of CEOs of the largest enterprises in Poland. The research studies have been conducted using both quantitative methods (by using a survey with closed-ended questions) and qualitative methods (having the form of direct interviews with respondents and an analysis of the content on websites of enterprises represented in the study) on a group of CEOs of the largest enterprises in the country 6. The research project was implemented from March 2013 to March 2014. 6 Persons invited to participate in the study titled Corporate social responsibility and enterprise value from the perspective of CEOs of the largest enterprises in Poland included CEOs of the largest enterprises operating in Poland, featured on the 15 th edition of the Rzeczpospolita 500 List published on 25 April 2013 by the Rzeczpospolita newspaper. The study included 60 CEOs representing Polish and foreign enterprises, 25% of which were listed on the Warsaw Stock Exchange. 11 CEOs gave direct interviews. 4

Supplementary theses for the 1 st stage of the research study were formulated as follows: Implementation of the concept of corporate social responsibility by an enterprise contributes to building its value. Listing an enterprise on the stock exchange supports its corporate social responsibility. The 2 nd stage involved the implementation of a research project titled Corporate social responsibility indices and building enterprise value on capital markets on the example of the RESPECT Index of the Warsaw Stock Exchange. The study was conducted on all companies covered by the RESPECT Index of the Warsaw Stock Exchange in all eight editions of the Index published in the years 2009 2014. In addition, according to the methodology applied for the selection of companies to the RESPECT Index, adopted by the Warsaw Stock Exchange, the study also covered domestic companies listed on the main trading floor of the Warsaw Stock Exchange and companies covered by the WIG20 index in the years 2009 2014 7. The study also covered the results of selected indices of the Warsaw Stock Exchange: WIG, WIG20, mwig40 and swig80 in the years 2009 2014. Both in the case of selected companies and selected indices listed on the Warsaw Stock Exchange, the study examined the enterprise value based on multiplier valuation methods: price earnings ratio (P/E), price-tobook ratio (P/B) and dividend yield (DY), and the financial measure for the assessment of change in enterprise value the rate of return on invested capital (TR). 8 Supplementary thesis for the 2 nd stage of the research study was formulated as follows: Implementation of the concept of corporate social responsibility by an enterprise contributes to building its value on a capital market. The studies conducted allowed to partially prove the leading thesis: Corporate social responsibility co-creates enterprise value on capital markets. They allowed to confirm that its true for enterprise value considered having regard to the price-to-book ratio (P/B), return on invested capital (TR), price earnings ratio (P/E) and dividend yield (DY), as well as for stock exchange indices covered by the study to the extent of their price-to-book ratio (P/B), return on invested capital (TR) and dividend yield (DY); and untrue to the extent of the price earnings ratio (P/E) for stock exchange indices covered by the study. In addition, the study 7 Number (nr) of companies covered by the RESPECT Index in individual years: nr=16 in 2009; nr=16 in 2010; nr=22 in 2011; nr=20 in 2012; nr=23 in 2013; nr=24 in 2014. 8 A relative scale, in accordance with the classification of scales according to Stevens, has been applied, enabling the comparison of achieved results and their value for both companies and indices listed on the Warsaw Stock Exchange. 5

did not confirm the importance of cooperation between the enterprise and a wide spectrum of stakeholders with the aim to create value and the importance of the CEO s opinion on the positive impact of corporate social responsibility on building value for building the value of their company using CSR tools and strategies. However, the CEO s opinion on CSR does affect responsible management, which is a characteristic of a socially responsible enterprise, and the communication of information regarding CSR measures being undertaken to a wide range of shareholders. Therefore, the answer to the study question: Does the implementation of the concept of corporate social responsibility by an enterprise contribute to building its value on a capital market? is as follows: The implementation of the corporate social responsibility concept by enterprises contributes to building their value on the capital market; however, obtained study results do not allow to conclusively determine whether this is the case for all companies and all available measures of their value. Study results suggest, however, that certain aspects of corporate social responsibility affect enterprise value creation to a greater extent than others. These aspects include ensuring a safe and attractive workplace, implementing a management and organisation system based on the responsibility of each employee, and building value and a corporate social responsibility culture. Study results also confirm that the implementation of corporate social responsibility positively correlates with the growth in enterprise s activity expected by CEOs, which confirms that CSR is implemented in economically stable enterprises which maintain economic, social and environmental aspects. In relation to the partial confirmation of theses posed, it is advisable to continue to conduct studies for other value measures and other scale of activity of enterprises on capital markets. The doctoral dissertation entitled Corporate Social Responsibility and Enterprise Value on Capital Markets comprises five main sections. The introduction includes a justification for the choice of the study topic and area. It also includes study questions and objectives as well as supplementary theses and hypotheses. In addition, it briefly describes the adopted methodological assumptions in the form of definitions and terms applied in the dissertation as well as the adopted paradigm that establishes the frame of mind for the entire argument presented. The first chapter has been devoted to the issue of corporate social responsibility. It proposes an original approach to the stages of its development by dividing it, mainly chronologically, 6

into four applied approaches: the normative approach (1970 1985); the constructive approach (1985 1995); the strategic approach (1995 present) and the holistic approach (2010 present). As a conclusion, the chapter presents milestones in the CSR concept development in the global literature on the subject as well as stages of evolution of its acceptance in the business approach of enterprises in Poland, both in theory and in practice. In addition, chapter 1 features key aspects of corporate social responsibility: business ethics, corporate philanthropy, natural environment protection, sustainable and responsible development, corporate governance, CSR norms and standards applied all over the world, corporate social activity reporting and international CSR initiatives. It also discusses the most common arguments posed by both critics and supporters of corporate social responsibility. The second chapter of the dissertation presents social conditions underpinning the activities of enterprises in the context of building their value. It also discusses the nature and objectives of businesses pursued by enterprises and their social surroundings. Much attention has been devoted to the stakeholder theory, which constitutes a key element of corporate social responsibility. In addition, the chapter presents how the concepts of enterprise value and maximising value for all stakeholders have evolved to be the primary objective of an enterprise. It also briefly presents modern sources and strategies for creating enterprise value as well as selected methods for measuring value and the effectiveness of enterprise value management. The issue of value creation from the perspective of corporate social responsibility has also been addressed. Corporate social responsibility and enterprise value from the perspective of CEOs of the largest enterprises in Poland is the title of an original research project presented in chapter three. This chapter presents the adopted methodological assumptions, research objectives, formulated theses and hypotheses, the course of the research process, obtained results, the verification of hypotheses and theses, as well as a summary and conclusions. The fourth chapter of the dissertation discusses socially responsible investing. It presents global and Polish capital markets, the concept of socially responsible investing and the global sustainable and responsible investment market. It also discusses selected corporate social responsibility indices: the family of the oldest CSR indices worldwide: Dow Jones Sustainability Indices and the first CSR index in Central and Eastern Europe the RESPECT Index of the Warsaw Stock Exchange. At the end, the chapter presents the results of studies presented in global literature on the effectiveness of sustainable and responsible investing. 7

The last, fifth, chapter of the doctoral dissertation presents the results of the second original research project devoted to CSR indices and building enterprise value on capital markets as shown on the example of the RESPECT Index of the Warsaw Stock Exchange. The last section of the dissertation presents conclusions of the studies, both theoretical and empirical, as well as proposes recommendations for enterprises to put into practice. The dissertation also provides the full bibliography of source literature used, an annex containing research tools used in empirical studies (survey questionnaire and interview script) and supplementary presentations of study results, charts and tables. Footnotes: Copeland T., Koller T., Murrin J., Valuation. Measuring and Managing The Value of Companies, Third, University Edition, McKinsey & Company Inc., Wiley Finance, New York, 2000 Klimek J., Etyka biznesu. Teoretyczne założenia, praktyka zastosowań, Difin, Warsaw, 2014 Kopycińska D., Koncepcja społecznej odpowiedzialności firmy - poezja teorii i proza życia, in: Gasparski W., Dietl J. (ed.), Etyka biznesu w działaniu. Doświadczenia i perspektywy, Wydawnictwo Naukowe PWN, Warsaw, 2001. p. 178 195 Rappaport A., Creating a Shareholder Value, The Free Press, New York, 1986 www.eurosif.org www.pwc.com www.ussif.org 8