2004 Moskowitz Prize
Lloyd Kurtz
Nelson Capital Management
SRI in the Rockies
Keystone, Colorado
October 9, 2004
2004 Winning Studies
• Moskowitz Prize Winner
– Orlitzky, Marc, Frank L. Schmidt, and Sara L. Rynes.
"Corporate social and financial performance: A metaanalysis." Organization Studies, 24, 2003.
• Honorable Mention
– Bollen, Nicolas P.B. and Mark A. Cohen. "Mutual Fund
Attributes and Investor Behavior." Working Paper, May 24,
2004.
Orlitzky’s Meta-Analysis
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Summary of Key Findings
Orlitzky’s Hypotheses
The Literature
Meta-Analysis
Detailed Results
Summary of Key Findings
• The corporate social responsibility (CSR)
literature is more meaningful and coherent
than most researchers realize.
• Statistically significant relationship between
CSR and corporate financial performance
(CFP).
• These relationships are very unlikely to be
spurious or caused by publication effects.
Orlitzky’s Hypotheses
• There will be a statistically significant
relationship between CSR and CFP.
• The two factors will mutually reinforce one
another.
• The correlation will be shown to be due to:
– Improved managerial competency
– Improved corporate reputation
• Much of the variance in studies will be due to:
– Sampling or measurement error
– Different data sources
The Literature
Numbers in parentheses show # of Moskowitz Prizes and Honorable Mentions.
Financial Academics (5)
Journal of Finance
Working Papers
Research Firms
Innovest, IRRC,
Inst. Shareholder Services
Financial Practitioners (2)
Financial Analysts Journal
Journal of Investing
Management Researchers (4)
Academy of Management Journal
Journal of Business
Economists
American Economic Review
The Economic Journal
Independent Organizations (1)
World Resource Institute
Env. Protection Agency
What is Meta-Analysis?
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Complex statistical technique.
Goal: “Make sense out of nonsense.”
Aggregates many studies.
Widely used in medical research.
Use in management/financial research is new.
• “Such after-the-fact, or retrospective, analysis
falls pretty low on the scale of scientific reliability.
But sometimes it provides good clues about
where problem areas may lie.”
- Time magazine, 9/3/01
Meta Analysis and Vioxx
Confirmed Serious CV Thrombotic
Events Observed in VIGOR
Source: FDA Advisory Committee Presentation, 2/8/01
www.fda.gov/ohrms/dockets/ac/01/slides/3677s2_05_li.PPT
50 mg
Meta-Analysis of COX-2s in 2001
• “The annualized myocardial infarction rates for COX-2 inhibitors in
both VIGOR and CLASS were significantly higher than that in the
placebo group of a recent meta-analysis of 23,407 patients in
primary prevention trials (0.52%): 0.74% with rofecoxib (P =.04
compared with the placebo group of the meta-analysis) and 0.80%
with celecoxib (P =.02 compared with the placebo group of the
meta-analysis). The available data raise a cautionary flag about the
risk of cardiovascular events with COX-2 inhibitors.”
– Source: Journal of the American Medical Association.
286(8):954-9, 2001 Aug 22-29.
• (Merck’s own meta-analysis did not show this effect.)
Final Warning
• [In an FDA-funded study by Kaiser Permanente]
“heart attack rates tripled for patients taking
Vioxx in doses higher than 25 milligrams per
day, according to the study. Lower doses of the
drug also increased the risk of a heart attack,
‘but not significantly so,’ the study indicated.
Merck defended the safety of its $2.5-billion-ayear drug and questioned the study."
– Source: Reuters, 8/27/04
The End
• “Merck &. Co., Inc. today announced a voluntary
worldwide withdrawal of VIOXX® (rofecoxib), its
arthritis and acute pain medication. The
company's decision, which is effective
immediately, is based on new, three-year data
from a prospective, randomized, placebocontrolled clinical trial...”
– Source: Company press release, 9/30/04
Bringing Meta Analysis to CSR
• Large body of quantitative work
• Controversy over:
– Definitions of key variables
– Methodology
• McWilliams and Siegel: Misuse of event studies
– Interpretation of results
• Griffin and Mahon: “25 years of incomparable research”
• Margolis and Walsh: Research is generally weak, but see
positive relationship
• “Despite the intensity of study directed at it, the relationship
between CSP and corporate financial performance (CFP)
remains in dispute.” – Barnett and Salomon, 2003
The Results – Hypothesis #1
• Hypothesis 1: There will be a statistically
significant relationship between CSR and
CFP.
• Supported:
– CSR explains 24% of the variance in CFP.
– File Drawer Analysis: 1,037
The Results – Hypothesis #2
• Hypothesis #2: The two factors will
mutually reinforce one another.
• Supported:
– By using time lags, Orlitzky finds that CFP is a
predictor of future CSR.
– But CSR also predicts CFP.
– “Taken together, these findings suggest a
virtuous cycle with quick cycle times or
concurrent bidirectionality.”
The Results – Hypothesis #3
• Hypothesis #3: The correlation will be
shown to be due to:
– Improved managerial competency
– Improved corporate reputation
• Supported:
– Both internal (competency) and external
(reputation) measures of CSR predicted CFP.
– Of the two, the reputation effect was stronger.
The Results – Hypothesis #4
• Hypothesis #4: Much of the variance in studies
will be due to:
– Sampling or measurement error
– Different data sources
• Supported:
– Sampling and measurement issues accounted for
24% of the variance across studies.
– Reputational measures were better predictors of CPF
than social audits (e.g., KLD ratings).
– Impact of CSR on CFP was stronger with accounting
measures than market measures.
Contacting the Authors
• Moskowitz Prize Winner
Dr. Mark Orlitzky
Sr. Lecturer
The University of Auckland Business School
Commerce C Building
18, Symonds Street
Auckland, New Zealand
m.orlitzky@auckland.ac.nz
• Honorable Mention
Nicholas Bollen
Vanderbilt Owen Graduate School of Management
401 21st Avenue South
Nashville, TN 37203
nick.bollen@owen.vanderbilt.edu
Further Information
• http://www.sristudies.org
Citations
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Barnett, Michael, and Robert Salomon. “Throwing a Curve at Socially
Responsible Investing Research: A New Pitch at an Old Debate.” Organization
& Environment, September 2003.
Bollen, Nicolas P.B. and Mark A. Cohen. "Mutual Fund Attributes and Investor
Behavior." Working Paper, May 24, 2004.
Griffin and Mahon. "The Corporate Social Performance and Corporate Financial
Performance Debate: Twenty-Five Years of Incomparable Research." Business
& Society, March 1997.
Margolis, Joshua, and James Walsh. People and Profits?: The Search for a Link
Between a Company's Social and Financial Performance. Lea Publishing, 2001
McWilliams, Abagail, and Donald Siegel. "Event Studies in Management
Research: Theoretical and Empirical Issues." Academy of Management Journal,
1999.
Orlitzky, Marc, Frank L. Schmidt, and Sara L. Rynes. "Corporate social and
financial performance: A meta-analysis." Organization Studies, 24, 2003.