The Impact of Corporate Social Responsibility on Risk Taking and Firm Value
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We hypothesize that CSR serves as a control mechanism to reduce deviations from optimal risk taking, and therefore, CSR curbs excessive risk taking and reduces excessive risk avoidance. Based on the stakeholder theory, firms with CSR focus must balance the interests of multiple stakeholders, and therefore, managers must allocate resources to satisfy both investing and non-investing stakeholders’ interests. Using five measures of corporate risk taking and a sample of 1718 US firms during 1998 to 2011, we find that stronger CSR performance is associated with smaller deviations from optimal risk taking levels. We examine the mechanism through which CSR has an impact on firm value and find a positive indirect impact of CSR on firm value through the impact of CSR on risk taking. CSR performance is positively associated with firm value because CSR reduces excessive risk taking and risk avoidance.
KeywordsCorporate social responsibility Risk taking Stakeholders Firm value
JEL ClassificationG30 G32 G34 G38 G39
We would like to thank the Editor-in-Chief, R. Edward Freeman, and eight (8) anonymous reviewers for their constructive suggestions and comments. Harjoto acknowledges the Denney Academic Chair (2015–2017) award for financial support and release time for this research project. Laksmana acknowledges the financial support from Kent State University College of Business Administration Dean’s 2015 Summer Research Funding.
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