Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence

49 Pages Posted: 9 Jul 2013 Last revised: 7 Nov 2019

See all articles by Rui A. Albuquerque

Rui A. Albuquerque

Boston College, Carroll School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Art Durnev

University of Iowa - Henry B. Tippie College of Business

Yrjo Koskinen

Haskayne School of Business, University of Calgary

Multiple version iconThere are 3 versions of this paper

Date Written: July 2013

Abstract

This paper presents an industry equilibrium model where firms have a choice to engage in corporate social responsibility (CSR) activities. We model CSR activities as a product differentiation strategy allowing firms to benefit from higher profit margins. The model predicts that CSR decreases systematic risk and increases firm value and that these effects are stronger for firms with high product differentiation. We find supporting evidence for our predictions. We address a potential endogeneity problem by instrumenting CSR using data on the political affiliation of the firm’s home state.

Keywords: beta, corporate social responsibility, firm value, industry equilibrium, product differentiation, systematic risk

JEL Classification: D43, G12, G32, L13, M14

Suggested Citation

Albuquerque, Rui A. and Durnev, Artyom and Koskinen, Yrjo J, Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence (July 2013). CEPR Discussion Paper No. DP9533, Available at SSRN: https://ssrn.com/abstract=2291334

Rui A. Albuquerque (Contact Author)

Boston College, Carroll School of Management ( email )

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Centre for Economic Policy Research (CEPR)

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European Corporate Governance Institute (ECGI) ( email )

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Artyom Durnev

University of Iowa - Henry B. Tippie College of Business ( email )

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Yrjo J Koskinen

Haskayne School of Business, University of Calgary ( email )

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