Corporate Social Responsibility and Litigation Risk

49 Pages Posted: 23 Nov 2020

See all articles by M. Martin Boyer

M. Martin Boyer

HEC Montreal - Department of Finance

Ksenia Kordonsky

HEC Montréal, Students

Date Written: April 20, 2020

Abstract

Litigation is costly to firms, and so is, allegedly, corporate social responsibility (CSR) activities. This paper investigates whether CSR helps reduce a firm's class-action securities litigation risk. We hypothesize that firms strategically invest in CSR to build moral capital to reduce the probability of securities litigation. Correcting for the endogeneity of CSR activities, we find robust evidence that CSR reduces the probability that a firm faces securities class-action lawsuits. Furthermore, we show that a higher CSR score reduces the size of the abnormal market reaction following the revelation of suspected fraud. These findings suggest that strategic philanthropy increases (or at least preserves) firm wealth by reducing the costs related to securities litigation.

Keywords: Corporate social responsibility, Securities class-action lawsuits, Litigation risk, Firm value, Insurance

JEL Classification: D82, G22, H55

Suggested Citation

Boyer, M. Martin and Kordonsky, Ksenia, Corporate Social Responsibility and Litigation Risk (April 20, 2020). Available at SSRN: https://ssrn.com/abstract=3704572 or http://dx.doi.org/10.2139/ssrn.3704572

M. Martin Boyer (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Ksenia Kordonsky

HEC Montréal, Students ( email )

Montreal
Canada

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