Abstract

http://ssrn.com/abstract=1961971
 
 

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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)

Art Durnev


University of Iowa - Henry B. Tippie College of Business

Yrjo Koskinen


The Wharton School - University of Pennsylvania

June 1, 2014


Abstract:     
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

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Date posted: November 20, 2011 ; Last revised: June 3, 2014

Suggested Citation

Albuquerque, Rui A. and Durnev, Art and Koskinen, Yrjo, Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence (June 1, 2014). Available at SSRN: http://ssrn.com/abstract=1961971 or http://dx.doi.org/10.2139/ssrn.1961971

Contact Information

Rui A. Albuquerque
Boston University - School of Management ( email )
595 Commonwealth Avenue
Boston, MA MA 02215
United States
HOME PAGE: http://people.bu.edu/ralbuque/
Católica-Lisbon School of Business and Economics ( email )
Caminho da Palma de Cima
Lisbon, 1649-023
Portugal
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Artyom Durnev (Contact Author)
University of Iowa - Henry B. Tippie College of Business ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
(514) 398-5394 (Phone)
(514) 398-3876 (Fax)
HOME PAGE: http://www.artdurnev.com
Yrjo Koskinen
The Wharton School - University of Pennsylvania ( email )
Finance Department
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-1587 (Phone)

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