Can Social Capital and Reputation Mitigate Political and Industry-Wide Risk?
62 Pages Posted: 28 Jan 2019 Last revised: 22 Oct 2020
Date Written: October 20, 2020
Abstract
We assess whether social capital, captured by CSR, is an effective hedge against risks arising from political and industry-wide uncertainty. Social capital significantly reduces stock return volatility during political uncertainty, but not cash flow volatility. Meanwhile, CSR is also an effective hedge against stock return volatility that arises from peer competition. Finally, the hedging effect of social capital on stock return volatility is transient but has a positive effect on firms’ future performance and growth opportunities.
Keywords: CSR, social capital, risk, gubernatorial elections, tariff shocks, operational hedge
JEL Classification: G18, G32, G38
Suggested Citation: Suggested Citation