Does CSR Reduce Firm Risk? Evidence from Controversial Industry Sectors

Hoje Jo () and Haejung Na ()

Journal of Business Ethics, 2012, vol. 110, issue 4, 456 pages

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

Keywords: Corporate social responsibility; Controversial industry sectors; Risk reduction; Window dressing (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (250)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10551-012-1492-2 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jbuset:v:110:y:2012:i:4:p:441-456

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10551/PS2

DOI: 10.1007/s10551-012-1492-2

Access Statistics for this article

Journal of Business Ethics is currently edited by Michelle Greenwood and R. Edward Freeman

More articles in Journal of Business Ethics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().