Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence
Rui A. Albuquerque
Boston College, Carroll School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
University of Iowa - Henry B. Tippie College of Business
Haskayne School of Business, University of Calgary
October 23, 2015
This paper presents an industry equilibrium model where firms have a choice to engage in corporate social responsibility (CSR) activities. We model CSR activities as a product differentiation strategy allowing 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 operating in differentiated goods industries and when consumers' expenditure share on CSR goods is small. 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.
Number of Pages in PDF File: 62
Keywords: corporate social responsibility, product differentiation, systematic risk, beta, firm value, industry equilibrium
JEL Classification: G12, G32, D43, L13, M14
Date posted: November 20, 2011 ; Last revised: November 7, 2015
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