Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence
48 Pages Posted: 20 Nov 2011 Last revised: 19 Jan 2018
Date Written: January 15, 2018
This paper presents an industry equilibrium model where firms have a choice to engage in corporate social responsibility (CSR) activities. We model CSR as an investment to increase product differentiation that allows 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
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