Abstract

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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


Boston University - School of Management; Centre for Economic Policy Research (CEPR)

June 2013

ECGI - Finance Working Paper No. 359

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 derive predictions for how CSR affects systematic risk and firm value. The paper predicts the following: CSR firms exhibit lower systematic risk and this effect is stronger for differentiated goods and when consumers’ expenditure share on CSR goods is low; CSR firms have higher firm value; and the ratio of CSR profits to non-CSR profits is countercyclical. We find supporting evidence for all of our predictions. In the empirical tests, we address a potential endogeneity problem by instrumenting CSR using data on the political affliation of the firm’s home state, and data on environmental and engineering disasters and product recalls.

Number of Pages in PDF File: 67

Keywords: corporate social responsibility, systematic risk, corporate valuation, customer loyalty, industry equilibrium

JEL Classification: G12, G32, D43, L13, M14

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Date posted: January 2, 2012 ; Last revised: July 9, 2013

Suggested Citation

Albuquerque, Rui A. and Durnev, Art and Koskinen, Yrjo, Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence (June 2013). ECGI - Finance Working Paper No. 359. Available at SSRN: http://ssrn.com/abstract=1977053 or http://dx.doi.org/10.2139/ssrn.1977053

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
Boston University - School of Management ( email )
595 Commonwealth Avenue
Boston, MA 02215
United States
617-353-9775 (Phone)
617-353-6667 (Fax)
HOME PAGE: http://smgnet.bu.edu/mgmt_new/profiles/KoskinenYrjo.html
Centre for Economic Policy Research (CEPR)
90-98 Goswell Road
London, EC1V 7RR
United Kingdom
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