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Does CSR Reduce Firm Risk? Evidence from Controversial Industry Sectors

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  • Hoje Jo

    ()

  • Haejung Na

    ()

Abstract

In this paper, we examine the relation between corporate social responsibility (CSR) and firm risk in controversial industry sectors. We develop and test two competing hypotheses of risk reduction and window dressing. Employing an extensive U.S. sample during the 1991–2010 period from controversial industry firms, such as alcohol, tobacco, gambling, and others, we find that CSR engagement inversely affects firm risk after controlling for various firm characteristics. To deal with endogeneity issue, we adopt a system equation approach and difference regressions and continue to find that CSR engagement of firms in controversial industry sectors negatively affects firm risk. To examine the premise that firm risk is more of an issue for controversial firms, we further examine the difference between non-controversial and controversial firm samples, and find that the effect of risk reduction through CSR engagement is more economically and statistically significant in controversial industry firms than in non-controversial industry firms. These findings support the risk-reduction hypothesis, but not the window-dressing hypothesis, and the notion that the top management of U.S. firms in controversial industries is, in general, risk averse and that their CSR engagement helps their risk management efforts. Copyright Springer Science+Business Media Dordrecht 2012

Suggested Citation

  • Hoje Jo & Haejung Na, 2012. "Does CSR Reduce Firm Risk? Evidence from Controversial Industry Sectors," Journal of Business Ethics, Springer, vol. 110(4), pages 441-456, November.
  • Handle: RePEc:kap:jbuset:v:110:y:2012:i:4:p:441-456
    DOI: 10.1007/s10551-012-1492-2
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Edmund Byrne, 2014. "Towards Enforceable Bans on Illicit Businesses: From Moral Relativism to Human Rights," Journal of Business Ethics, Springer, vol. 119(1), pages 119-130, January.
    2. Andreas Hoepner & Arleta Majoch, 2016. "Pension Funds and the Principles for Responsible Investment: Multiplying Stakeholder Salience?," ICMA Centre Discussion Papers in Finance icma-dp2016-07, Henley Business School, Reading University.
    3. Remmer Sassen & Anne-Kathrin Hinze & Inga Hardeck, 2016. "Impact of ESG factors on firm risk in Europe," Journal of Business Economics, Springer, vol. 86(8), pages 867-904, November.
    4. Pascal Nguyen & Anna Nguyen, 2015. "The effect of corporate social responsibility on firm risk," Social Responsibility Journal, Emerald Group Publishing, vol. 11(2), pages 324-339, June.
    5. Kammerlander, Nadine & Sieger, Philipp & Voordeckers, Wim & Zellweger, Thomas, 2015. "Value creation in family firms: A model of fit," Journal of Family Business Strategy, Elsevier, vol. 6(2), pages 63-72.
    6. Jinhua Cui & Hoje Jo & Manuel G. Velasquez, 2016. "Community Religion, Employees, and the Social License to Operate," Journal of Business Ethics, Springer, vol. 136(4), pages 775-807, July.
    7. Kiyoung Chang & Incheol Kim & Ying Li, 2014. "The Heterogeneous Impact of Corporate Social Responsibility Activities That Target Different Stakeholders," Journal of Business Ethics, Springer, vol. 125(2), pages 211-234, December.
    8. Joel Marcus & Heather MacDonald & Lorne Sulsky, 2015. "Do Personal Values Influence the Propensity for Sustainability Actions? A Policy-Capturing Study," Journal of Business Ethics, Springer, vol. 127(2), pages 459-478, March.
    9. Kerr, Sandy & Johnson, Kate & Weir, Stephanie, 2017. "Understanding community benefit payments from renewable energy development," Energy Policy, Elsevier, vol. 105(C), pages 202-211.
    10. repec:eee:touman:v:59:y:2017:i:c:p:610-620 is not listed on IDEAS
    11. repec:eee:jbrese:v:80:y:2017:i:c:p:82-97 is not listed on IDEAS
    12. Cheung, Adrian (Wai Kong), 2016. "Corporate social responsibility and corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 412-430.
    13. repec:kap:jbuset:v:145:y:2017:i:3:d:10.1007_s10551-015-2890-z is not listed on IDEAS
    14. repec:eee:ecolet:v:160:y:2017:i:c:p:100-104 is not listed on IDEAS
    15. Siv Skard & Helge Thorbjørnsen, 2014. "Is Publicity Always Better than Advertising? The Role of Brand Reputation in Communicating Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 124(1), pages 149-160, September.
    16. Li Cai & Jinhua Cui & Hoje Jo, 2016. "Corporate Environmental Responsibility and Firm Risk," Journal of Business Ethics, Springer, vol. 139(3), pages 563-594, December.
    17. repec:gam:jsusta:v:10:y:2018:i:2:p:522-:d:132020 is not listed on IDEAS
    18. Michael S. McLeod & G. Tyge Payne & Robert E. Evert, 2016. "Organizational Ethics Research: A Systematic Review of Methods and Analytical Techniques," Journal of Business Ethics, Springer, vol. 134(3), pages 429-443, March.
    19. repec:eee:riibaf:v:42:y:2017:i:c:p:572-582 is not listed on IDEAS
    20. repec:kap:jbuset:v:148:y:2018:i:3:d:10.1007_s10551-015-3003-8 is not listed on IDEAS
    21. repec:pal:assmgt:v:18:y:2017:i:5:d:10.1057_s41260-016-0039-y is not listed on IDEAS
    22. repec:kap:jbuset:v:143:y:2017:i:4:d:10.1007_s10551-016-3072-3 is not listed on IDEAS

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