The Cost of Corporate Social Responsibility after a Catastrophe
39 Pages Posted: 28 Dec 2014 Last revised: 21 Jul 2015
Date Written: May 5, 2015
Previous research has found that CSR initiatives can preserve firm-value after an adverse event, or that CSR has “insurance-like” properties. Catastrophic events, however, can increase scrutiny and pressure upon an entire industry. To improve the industry’s damaged reputation and lessen external pressure, some members of the industry will often engage in self-regulation. I posit that firms with substantive corporate social responsibility (CSR) initiatives will actually lose more firm-value after a catastrophe, because they will be expected to engage in costly self-regulation after the event. I also argue that due to strategic activist targeting, firms subject to greater past activism will lose more firm-value. Using an event-study, I examine the apparel industry after the collapse of Rana Plaza.
Keywords: corporate social responsibility, event study, reputation commons problem, activist pressure, risk management
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