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Corporate Social Responsibility and Firm Idiosyncratic Risk in Different Market States

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  • Roger C.Y. Chen
  • Shih‐Wei Hung
  • Chen‐Hsun Lee

Abstract

This study explored the influence of corporate social responsibility (CSR) on idiosyncratic risk. Referring to an approach used by Pagan and Sossounov, we separated the sample period into up‐market, down‐market, and correction conditions and observed the changes in the influence of CSR on idiosyncratic risk in different market states. The results find that firms with better CSR performance can reduce their idiosyncratic risk. Furthermore, in different market states, CSR can significantly decrease idiosyncratic risk, whereas firms with poorer CSR performance have more idiosyncratic risk. Our findings are beneficial for firms that can use CSR engagement to adjust their business strategy and reduce operational uncertainty. Therefore, CSR engagement can function as a tool for risk management. Copyright © 2018 John Wiley & Sons, Ltd and ERP Environment

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  • Roger C.Y. Chen & Shih‐Wei Hung & Chen‐Hsun Lee, 2018. "Corporate Social Responsibility and Firm Idiosyncratic Risk in Different Market States," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 25(4), pages 642-658, July.
    • Handle: RePEc:wly:corsem:v:25:y:2018:i:4:p:642-658
    DOI: 10.1002/csr.1483
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