Perceived Trust and Corporate Litigation: The Role of Corporate Social Responsibility

58 Pages Posted: 18 May 2021

See all articles by Rahman Khokhar

Rahman Khokhar

Saint Mary's University, Canada - Department of Finance, Information Systems & Management Science

Hesam Shahriari

Prairie View A&M University

Date Written: May 15, 2021

Abstract

We document that firms increase their investment in ESG activities, a proxy for CSR performance, in anticipation of lawsuits from external stakeholders to mitigate the adverse consequences of such legal externalities. We find that higher CSR performance is also positively related to the litigation count and propensity for class-action lawsuits. We show that this strategy to enhance CSR performance prior to anticipated litigation pays off in multiple ways, including a smaller negative wealth effect, shorter litigation process, and lower likelihood of class-action grants or monetary penalties against the defendant firm. The findings are robust to alternative measures of CSR performance, industry factors, and endogeneity concerns. Moreover, firms seem to boost their CSR performance even further after a rise in lawsuit activity. The evidence suggests that CSR performance is an additional risk mitigation tool – or an on-demand insurance policy – against anticipated lawsuits.

Keywords: Corporate Social Responsibility, CSR Performance, Litigation Risk, Civil Lawsuits

JEL Classification: G32, K15, K22, M14

Suggested Citation

Khokhar, Abdul Rahman and Shahriari, Hesam, Perceived Trust and Corporate Litigation: The Role of Corporate Social Responsibility (May 15, 2021). Available at SSRN: https://ssrn.com/abstract=3847020 or http://dx.doi.org/10.2139/ssrn.3847020

Abdul Rahman Khokhar

Saint Mary's University, Canada - Department of Finance, Information Systems & Management Science ( email )

Halifax, Nova Scotia B3H 3C3
Canada

Hesam Shahriari (Contact Author)

Prairie View A&M University ( email )

College of Business
Prairie View, TX 77446
United States
9362619255 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
59
Abstract Views
216
rank
440,913
PlumX Metrics