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Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence

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  • Albuquerque, Rui
  • Durnev, Artyom
  • Koskinen, Yrjö

Abstract

This paper presents an industry equilibrium model where firms can choose to engage in corporate social responsibility (CSR) activities. We model CSR activities as an investment in customer loyalty and show that CSR decreases systematic risk and increases firm value. These effects are stronger for firms producing differentiated goods and when consumers' expenditure share on CSR goods is small. We find supporting evidence for our predictions. In our empirical tests, we address a potential endogeneity problem by instrumenting CSR using data on the political affiliation of the firm's home state, and data on environmental and engineering disasters and product recalls.

Suggested Citation

  • Albuquerque, Rui & Durnev, Artyom & Koskinen, Yrjö, 2013. "Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence," CEPR Discussion Papers 9533, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9533
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ferrell, Allen & Liang, Hao & Renneboog, Luc, 2016. "Socially responsible firms," Journal of Financial Economics, Elsevier, vol. 122(3), pages 585-606.
    2. Puggioni, Daniela & Stefanou, Spiro E., 2016. "The Value of Being Socially Responsible. A DEA Approach for Analyzing Efficiency and Recovering Shadow Prices of CSR Activities," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235723, Agricultural and Applied Economics Association.
    3. Natalia Semenova & Lars Hassel, 2015. "On the Validity of Environmental Performance Metrics," Journal of Business Ethics, Springer, vol. 132(2), pages 249-258, December.
    4. Krüger, Philipp, 2015. "Corporate goodness and shareholder wealth," Journal of Financial Economics, Elsevier, vol. 115(2), pages 304-329.
    5. 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.

    More about this item

    Keywords

    corporate social responsibility; corporate valuation; customer loyalty; industry equilibrium; systematic risk;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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