An analysis on firm valuation, CSR performance and investment cash flow sensitivity: Evidence from the S&P500

This study investigates to what extent CSR performance and investment cash flow sensitivity are determinants for future investments made by undervalued and overvalued firms in the S&P500. Data is acquired from the Refinitif Eikon database. Firms from the financial industry are excluded from the final sample. Based on existing literature about CSR performance, investment cash flow sensitivity and firm size/valuation, several hypotheses are formed regarding the determinants for the investment-to-total asset ratio. The results show that investment cash flow sensitivity plays no significant role for firms in the S&P500. CSR performance is a more important denominator for investments made by undervalued firms than for overvalued firms. Undervalued firms that have high CSR performance are likely to invest more. This can be explained by the signal that undervalued firms send when investing in CSR and the benefits a firm can have by having high CSR performance. These findings are in line with the existing literature.