Doing Safe by Doing Good: Non-Financial Reporting and the Risk Effects of Corporate Social Responsibility
This paper is forthcoming at European Accounting Review.
70 Pages Posted: 18 Aug 2020 Last revised: 11 Feb 2022
Date Written: February 10, 2022
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
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