70 Pages Posted: 2 Jan 2012 Last revised: 13 Jun 2014
Date Written: June 1, 2014
This paper presents an industry equilibrium model where firms can choose to engage in corporate social responsibility (CSR) activities. We model CSR activities as an investment in customer loyalty and show that CSR decreases systematic risk and increases firm value. These effects are stronger for firms producing differentiated goods and when consumers’ expenditure share on CSR goods is small. We find supporting evidence for our predictions. In our empirical tests, we address a potential endogeneity problem by instrumenting CSR using data on the political affliation of the firm’s home state, and data on environmental and engineering disasters and product recalls.
Keywords: corporate social responsibility, systematic risk, expected return, corporate valuation, customer loyalty, industry equilibrium
JEL Classification: G12, G32, D43, L13, M14
Suggested Citation: Suggested Citation
Albuquerque, Rui A. and Durnev, Art and Koskinen, Yrjo, Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence (June 1, 2014). ECGI - Finance Working Paper No. 359. Available at SSRN: https://ssrn.com/abstract=1977053 or http://dx.doi.org/10.2139/ssrn.1977053