Being Nice to Stakeholders: The Effect of Economic Policy Uncertainty on Corporate Social Responsibility
60 Pages Posted: 23 Jan 2018 Last revised: 15 Feb 2020
Date Written: November 10, 2018
This study examines the reaction of firms to economic policy uncertainty (EPU) by investing in corporate social responsibility (CSR). Using a Chinese sample, we find a positive and significant relationship between EPU and the CSR engagement of firms. Firms tend to send a signal to their stakeholders to convey that they honor implicit contracts by investing in CSR activities during high uncertainty periods. The results support the risk management perspective that firms adopt CSR as an ex-ante insurance mechanism. Our findings are more significant in firms in low social trust regions and firms connected to arrested corrupt officials. Results are robust to a variety of model specifications and endogeneity problems.
Keywords: economic policy uncertainty, corporate social responsibility, investment
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