Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence
This paper presents an industry equilibrium model where firms have a choice to engage in corporate social responsibility (CSR) activities. We model CSR as an investment to increase product differentiation that allows firms to benefit from higher profit margins. The model predicts that CSR decreases...
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Published in | Management science Vol. 65; no. 10; pp. 4451 - 4469 |
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Main Authors | , , |
Format | Journal Article |
Language | English |
Published |
Linthicum
INFORMS
01.10.2019
Institute for Operations Research and the Management Sciences |
Subjects | |
Online Access | Get full text |
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Summary: | This paper presents an industry equilibrium model where firms have a choice to engage in corporate social responsibility (CSR) activities. We model CSR as an investment to increase product differentiation that allows firms to benefit from higher profit margins. The model predicts that CSR decreases systematic risk and increases firm value and that these effects are stronger for firms with high product differentiation. We find supporting evidence for our predictions. We address a potential endogeneity problem by instrumenting CSR using data on the political affiliation of the firm’s home state.
This paper was accepted by Gustavo Manso, finance. |
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ISSN: | 0025-1909 1526-5501 |
DOI: | 10.1287/mnsc.2018.3043 |