Doing Safe by Doing Good: Non-Financial Reporting and the Risk Effects of Corporate Social Responsibility

Abstract

We compare the effects of corporate social responsibility (CSR) on firms' equity risk under two different (non-)financial reporting regimes: the risk-based U.S. and the content-based EU system. We observe a strongly negative CSR-risk relation in the EU, but a much weaker general impact in the U.S. In correspondence with goal-framing theory, we find several moderating effects on this association, depending on the reporting regime: (i) A highly volatile market environment unfolds the risk-reducing effect of CSR in the U.S. system, but has no moderating effect in the EU; (ii) Rising CSR awareness buttresses the risk-reducing effect of CSR in the EU, but has an opposing effect in the U.S.; (iii) Risk reductions are most strongly associated with social and governance rather than environmental activity in the EU regime, while there are no such individual effects in the U.S.

Keywords: Non-financial reporting; corporate social responsibility; ESG; sustainability; equity risk; dynamic panel estimation

JEL Classification: G11; G32; G34; O16; Q56