Corporate Social (Ir)responsibility and Firm Risk: The Role of Corporate Governance

Abstract

This study examines how corporate governance moderates the association between corporate social responsibility (CSR)/corporate social irresponsibility (CSI) and firm risk. In adopting this research design, our research simultaneously tests three prevailing theories, i.e., Corporate Social Performance (CSP)-as-insurance theory, product differentiation theory and agency theory. Our results suggest that CSR activities can lead to greater risk reduction for firms with governance characteristics indicating stronger information intensity/transparency and CSP alignment. Conversely, the positive association between CSI and firm risk is more pronounced for firms with corporate governance characteristics that indicate greater information intensity/transparency and CSP alignment. In general, our evidence supports product differentiation theory while being inconsistent with agency theory and CSP-as-Insurance theory in linking CSR/CSI to firm risk.

Keywords: Corporate Social Responsibility (CSR), Corporate Social Irresponsibility (CSI), Firm Risk, Insurance Theory, Product Differentiation Theory, Agency Theory

JEL Classification: G32, G34, C23, C26