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The non-linear effect of CSR on firms’ systematic risk: International evidence

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  • Farah, Tazrina
  • Li, Jialong
  • Li, Zhicheng
  • Shamsuddin, Abul

Abstract

This study examines the nonlinear effects of corporate social responsibility (CSR) on firms’ systematic risk and identifies the degree of operating leverage as a channel through which CSR exerts its influence on firm risk. Using a large international sample of firms from 43 countries for the period 2005–2017, we find that the relationship between CSR and firms’ systematic risk is nonlinear, exhibiting an inverted U-shaped pattern. More specifically, our results show that initially risk rises with an increase in CSR but after reaching a threshold level of CSR, firms experience risk reduction as CSR increases. The CSR–risk relationship is moderated by a few country-specific factors, namely national CSR sustainability and legal environment. Our findings are robust to controlling for potential endogeneity of CSR.

Suggested Citation

  • Farah, Tazrina & Li, Jialong & Li, Zhicheng & Shamsuddin, Abul, 2021. "The non-linear effect of CSR on firms’ systematic risk: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:intfin:v:71:y:2021:i:c:s104244312100007x
    DOI: 10.1016/j.intfin.2021.101288
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    3. Qian Wang & Huiru Chen & Yajiong Xue & Huigang Liang, 2022. "How Corporate Social Responsibility Affects Firm Performance: The Inverted-U Shape Contingent on Founder CEO," Sustainability, MDPI, vol. 14(18), pages 1-24, September.

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