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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Bibliographic Details
Published inManagement science Vol. 65; no. 10; pp. 4451 - 4469
Main Authors Albuquerque, Rui, Koskinen, Yrjö, Zhang, Chendi
Format Journal Article
LanguageEnglish
Published Linthicum INFORMS 01.10.2019
Institute for Operations Research and the Management Sciences
Subjects
beta
Companies
Corporate governance
corporate social responsibility
Differentiation
Equilibrium
firm value
industry equilibrium
Product differentiation
Profit margins
Risk assessment
Social responsibility
systematic risk
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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.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.2018.3043