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CSR engagement and financial risk: A virtuous circle? International evidence

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  • Chollet, Pierre
  • Sandwidi, Blaise W.

Abstract

This paper investigates the complex relationship between the financial risk of firms and their engagement in corporate social responsibility (CSR), measured by Thomson Reuters ASSET4 environmental, social, and governance scores. Financial risk is estimated by the usual proxies: systematic, firm-specific, and total risks. Analyzing an international sample of 23,194 firm-year observations from 2003 to 2012 by using a panel vector autoregressive (VAR) model with generalized method of moments (GMM) estimations, we demonstrate a virtuous circle between corporate social performance (CSP) and risk (specific and total). More specifically, we show that a firm's good social and governance performance reduces its financial risk and thereby reinforces its commitment to good governance and environmental practices.

Suggested Citation

  • Chollet, Pierre & Sandwidi, Blaise W., 2018. "CSR engagement and financial risk: A virtuous circle? International evidence," Global Finance Journal, Elsevier, vol. 38(C), pages 65-81.
    • Handle: RePEc:eee:glofin:v:38:y:2018:i:c:p:65-81
    DOI: 10.1016/j.gfj.2018.03.004
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    More about this item

    Keywords

    Corporate financial risk; Corporate social responsibility; Corporate social performance; ESG scores; Virtuous circle;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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