Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence
Rui A. Albuquerque
Boston University - School of Management; Católica-Lisbon School of Business and Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
University of Iowa - Henry B. Tippie College of Business
The Wharton School - University of Pennsylvania
June 1, 2014
This paper presents an industry equilibrium model where firms can choose to engage in corporate social responsibility (CSR) activities. We model CSR activities as an investment in customer loyalty and show that CSR decreases systematic risk and increases firm value. These effects are stronger for firms producing differentiated goods and when consumers’ expenditure share on CSR goods is small. We find supporting evidence for our predictions. In our empirical tests, we address a potential endogeneity problem by instrumenting CSR using data on the political affiliation of the firm’s home state, and data on environmental and engineering disasters and product recalls.
Number of Pages in PDF File: 77
Keywords: corporate social responsibility, customer loyalty, systematic risk, expected return, industry equilibrium
JEL Classification: G12, G32, D43, L13, M14
Date posted: November 20, 2011 ; Last revised: June 3, 2014
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