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

Posted: 23 May 2016 Last revised: 24 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: May 24, 2016

Abstract

We hypothesize that CSR serves as a control mechanism to reduce deviations from optimal risk taking, and therefore, CSR curbs excessive risk taking and reduces excessive risk avoidance. Based on the stakeholder theory, firms with CSR focus must balance the interests of multiple stakeholders, and therefore, managers must allocate resources to satisfy both investing and non-investing 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 smaller deviations from optimal risk taking levels. 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 the impact of CSR 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, Stakeholder Theory, Firm Value

JEL Classification: G30, G32, G34, G38, G39

Suggested Citation

Harjoto, Maretno Agus and Laksmana, Indrarini, The Impact of Corporate Social Responsibility on Risk Taking and Firm Value (May 24, 2016). Journal of Business Ethics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2782615

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

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