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Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence

52 Pages Posted: 20 Nov 2011 Last revised: 11 Jun 2017

Rui A. Albuquerque

Boston College, Carroll School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Yrjo Koskinen

Haskayne School of Business, University of Calgary

Chendi Zhang

University of Warwick - Finance Group

Date Written: June 1, 2017

Abstract

This paper presents an industry equilibrium model where firms have a choice to engage in corporate social responsibility (CSR) activities. We model CSR activities as a product differentiation strategy allowing firms to benefit from higher profit margins. The model predicts that CSR decreases systematic risk and increases firm value and that these effects are stronger for firms with high product differentiation. We find supporting evidence for our predictions. We address a potential endogeneity problem by instrumenting CSR using data on the political affiliation of the firm's home state.

Keywords: corporate social responsibility, product differentiation, systematic risk, beta, firm value, industry equilibrium

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

Suggested Citation

Albuquerque, Rui A. and Koskinen, Yrjo and Zhang, Chendi, Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence (June 1, 2017). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 359/2013. Available at SSRN: https://ssrn.com/abstract=1961971 or http://dx.doi.org/10.2139/ssrn.1961971

Rui A. Albuquerque (Contact Author)

Boston College, Carroll School of Management ( email )

140 Commonwealth Avenue
Chustnut Hill, MA 02467-3808
United States

HOME PAGE: http://ruialbuquerque.webs.com

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

Yrjo J Koskinen

Haskayne School of Business, University of Calgary ( email )

SH 154, 2500 University Drive NW
Calgary, Alberta T2N 1N4
Canada
+1-403-220-5540 (Phone)

HOME PAGE: http://haskayne.ucalgary.ca/haskayne_info/profiles/yrjo-koskinen

Chendi Zhang

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

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