The Impact of Corporate Social Responsibility on Excessive Risk Taking and Firm Value

49 Pages Posted: 10 May 2016

See all articles by Maretno A. Harjoto

Maretno A. Harjoto

Pepperdine University - Pepperdine Graziadio Business School (PGBS)

Indrarini Laksmana

Kent State University - Department of Accounting

Date Written: September 2, 2015

Abstract

We hypothesize that CSR serves as a control mechanism to curb excessive risk taking and to reduce excessive risk avoidance. Firms with CSR focus must balance the interests of multiple stakeholders, and therefore, must allocate resources to satisfy both investing and noninvesting stakeholders’ interests. Using five measures of corporate risk taking and a sample of 1,718 U.S. firms during 1998 to 2011, we find that stronger CSR performance is associated with lower level of risk taking activities for firms with risk taking measures above the industry median. We also find some evidence that CSR performance increases risk taking for firms with risk taking measures below the industry median. We examine the mechanism through which CSR has an impact on firm value and find a positive indirect impact of CSR on firm value through its impact on risk taking. CSR performance is positively associated with firm value because CSR reduces excessive risk taking and risk avoidance.

Keywords: Corporate Social Responsibility, Risk Taking, Firm Value, Stakeholders

JEL Classification: G30, G32, G34, G38 G39

Suggested Citation

Harjoto, Maretno Agus and Laksmana, Indrarini, The Impact of Corporate Social Responsibility on Excessive Risk Taking and Firm Value (September 2, 2015). Available at SSRN: https://ssrn.com/abstract=2777215 or http://dx.doi.org/10.2139/ssrn.2777215

Maretno Agus Harjoto (Contact Author)

Pepperdine University - Pepperdine Graziadio Business School (PGBS) ( email )

Drescher Campus Suite 344
24255 Pacific Coast Highway
Malibu, CA 90263
United States
(310) 506-8542 (Phone)
(310) 506-4126 (Fax)

HOME PAGE: http://scholar.google.com/citations?hl=en&user=9-PfQi0AAAAJ

Indrarini Laksmana

Kent State University - Department of Accounting ( email )

P.O. Box 5190
Kent, OH 44242-0001
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
265
Abstract Views
1,403
rank
114,274
PlumX Metrics