Do Firms React to Uncertainty by Doing Good Deeds? Uncertainty and CSR Investment

60 Pages Posted: 29 Jan 2020

See all articles by Yunhao Dai

Yunhao Dai

Huazhong University of Science and Technology (Formerly Tongi Medical University)

P. Raghavendra Rau

University of Cambridge

Weiqiang Tan

Hong Kong Baptist University

Date Written: January 23, 2020

Abstract

We find that firms invest more to build up corporate social capital, as measured by corporate social responsibility (CSR) intensity, when facing high economic policy uncertainty (EPU). The results are robust to endogeneity concerns. The effects are more pronounced for firms in consumer-oriented industries, firms headquartered in high social capital regions, and for firms in industries with higher levels of irreversible investments. Overall, our results suggest that investment in social capital affects trust between a firm and its stakeholders and this provides a cushion when firms face high levels of uncertainty.

Keywords: Economic policy uncertainty, social capital investment, corporate social responsibility (CSR), trust

JEL Classification: G34, M14

Suggested Citation

Dai, Yunhao and Rau, P. Raghavendra and Tan, Weiqiang, Do Firms React to Uncertainty by Doing Good Deeds? Uncertainty and CSR Investment (January 23, 2020). Available at SSRN: https://ssrn.com/abstract=3524398 or http://dx.doi.org/10.2139/ssrn.3524398

Yunhao Dai

Huazhong University of Science and Technology (Formerly Tongi Medical University) ( email )

1037 Luoyu Rd
Wuhan, Hubei 430074
China

P. Raghavendra Rau (Contact Author)

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

Weiqiang Tan

Hong Kong Baptist University ( email )

Dept of FDS, HK Baptist U
Kowloon, AK 99999
Hong Kong

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