Have You Been Served? Extending the Relationship between Corporate Social Responsibility and Lawsuits

Abstract

Corporate social responsibility (CSR) has been shown to provide insurance-like protection that buffers firms from losses when they are sued. But does CSR also buffer firms from being sued? We conduct a study of 408 U.S. firms over the period 2002 to 2011 and find that, indeed, firms with greater CSR were less likely to be sued. Yet despite suffering fewer lawsuits, we also find that firms with greater CSR were more likely to set aside provisions for litigation. Together, these findings suggest that CSR’s buffering benefits may extend beyond just helping firms to suffer less harm from negative events, to include helping to protect firms from suffering negative events in the first place. Moreover, high CSR firm’s tendency toward transparency may be what drives the extension of these protective benefits. We call for more research on the scope and conditions under which CSR buffers firms from harm.

Keywords: corporate social responsibility, lawsuits, insurance