عنوان انگلیسی مقاله:

The effect of corporate social responsibility on firm risk

ترجمه عنوان مقاله: اثر مسئولیت اجتماعی شرکت ها بر ریسک شرکت

رشته: مالی و حسابداری

سال انتشار: 2015

تعداد صفحات مقاله انگلیسی: 17 صفحه

منبع: Emerald

نوع فایل: pdf

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چکیده مقاله

Purpose: The purpose of this paper is to investigate the link between corporate social responsibility (CSR) and risk for a sample of US firms rated by KLD.

Design/methodology/approach: The authors’ approach involves three distinctive features. First, the authors use individual indicators of CSR to highlight which CSR dimension matters most for a firm’s risk. Second, the authors distinguish CSR strengths and concerns to reveal potentially nonlinear relationships. Third, the authors use a measure of risk that takes into account the predictable changes in a firm’s performance and that does not collapse the panel data into a single cross-section. This allows the CSR–risk relationship to be estimated by the variation within each firm and the variation across firms.

Findings: Consistent with existing results, the authors find that CSR concerns relating to diversity, employee relations and corporate governance increase the risk to shareholders. More interestingly, the authors show that CSR strengths relating to diversity and employee relations are also associated with higher risk. The positive influence of both CSR strengths and concerns on a firm’s risk is confirmed using aggregate CSR indicators.

Research limitations/implications: The results confirm that CSR strengths and concerns represent distinct constructs that should not be aggregated into a single measure. The effect of poor CSR on firm risk is more significant than what would appear to be the case using an aggregate index.

Practical implications: Although lack of CSR engagement may not affect (and may even benefit) a firm’s current performance, it may seriously damage its performance in the future. Firms should be aware of this risk.

Originality/value: The positive relationship found between CSR and firm risk underscores the inherent conflict between the interests of employees and those of shareholders. By committing to a more favorable treatment of their employees, firms incur a fixed cost that inevitably transfers more risk to their shareholders.

Keywords: CSR, Social responsibility, Firm risk, Stakeholders support

Paper type: Research paper

مقدمه مقاله

While the link between corporate social responsibility (CSR) and financial performance has been extensively investigated[1], the association between CSR and firm risk remains much less understood. Orlitzky and Benjamin (2001) review the empirical evidence and underline the differences in methodologies and inconsistencies across studies. Nonetheless, a weak negative relationship seems to exist between CSR and risk, which supports the idea that CSR activities can help firms to mitigate the fallout from negative events. For instance, CSR may reduce the likelihood of lawsuits due to accidental pollution and may generate goodwill that insulates firms against a public backlash.

In this paper, we re-examine the relation between CSR and firm risk using a sample of US firms rated by KLD[2]. To preserve the panel structure of the data, we measure risk by the absolute deviation from a firm’s expected performance. This approach proposed by Adams et al. (2005) allows us to exploit the variations within each firm in addition to the variations across firms. It also takes into account the predictable changes in a firm’sperformance, which standard measures of volatility completely ignore. Consequently, our measure is a better indicator of the true risk affecting a firm’s performance. Following the advice of Hillman and Keim (2001) and Rehbein et al. (2004), we also evaluate the effects of each CSR dimension and distinguish CSR strengths from CSR concerns, instead of using an aggregate index, as has often been the case in previous studies. This approach offers the potential to reveal more complex (e.g. nonlinear) relationships and may indicate which CSR dimensions have a stronger effect on firm risk.

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