52 Pages Posted: 20 Nov 2011 Last revised: 11 Jun 2017
Date Written: June 1, 2017
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: 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