Corporate Social Responsibility: An Umbrella or a Puddle on a Rainy Day? Evidence Surrounding Corporate Financial Misconduct

41 Pages Posted: 19 May 2020

See all articles by John Bae

John Bae

Elon University - Love School of Business

Wonik Choi

California State University, Fullerton - Department of Accounting

Jongha Lim

California State University, Fullerton - Department of Finance

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Date Written: January 2020

Abstract

We examine the way a fraudulent firm's pre‐ and post‐misconduct corporate social responsibility engagement is associated with its stock performance to investigate the reputational role of corporate social responsibility (CSR). In the short term, firms with good CSR performance suffer smaller market penalties upon the revelation of financial wrongdoing, supporting the buffer effect, as opposed to the backfire effect, of a good social image. We also find that the misbehaving firms’ post‐misconduct CSR efforts are negatively associated with delisting probabilities, and positively with stock returns. These findings support the argument that increasing post‐crisis CSR engagement can be an effective remedy for a damaged reputation.

Keywords: corporate social responsibility, financial misconduct, insurance, market penalty, reputation repair

Suggested Citation

Bae, John and Choi, Wonik and Lim, Jongha, Corporate Social Responsibility: An Umbrella or a Puddle on a Rainy Day? Evidence Surrounding Corporate Financial Misconduct (January 2020). European Financial Management, Vol. 26, Issue 1, pp. 77-117, 2020, Available at SSRN: https://ssrn.com/abstract=3600304 or http://dx.doi.org/10.1111/eufm.12235

John Bae (Contact Author)

Elon University - Love School of Business ( email )

Elon, NC 27244
United States

Wonik Choi

California State University, Fullerton - Department of Accounting ( email )

P.O. Box 34080
Fullerton, CA 92834-6848
United States

Jongha Lim

California State University, Fullerton - Department of Finance ( email )

PO Box 34080
Fullerton, CA 92834-9480
United States

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