Market Reactions of Mandatory Implementation of Corporate Social Responsibility: Indonesia Context

Abstract

The previous research reports an inconsistent result on the relationship between corporate social responsibility (CSR) and firm's financial performance. Corporations in Indonesia are now adopting and implementing CSR practices as required by the Government through Law 40/2007 paragraph 74. This paper investigates this issue by employing two studies (phases), qualitative and quantitative research. The first phase used secondary data from mass media reporting interconnected themes on CSR from January 2005 to December 2007, the result of which was analyzed using the content analysis method. The results of the first phase were then used to construct the hypothesis at the second phase. The second phase used secondary data from Indonesia capital market. The data was analyzed using the event study method. The results show that Indonesian firms undertaking voluntary CSR activities gain positive abnormal return when the announcement of mandatory CSR is released.