Graziadio Working Paper Series


The Impact of Corporate Social Responsibility on Excessive Risk Taking and Firm Value

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We hypothesize that CSR serves as a control mechanism to curb excessive risk taking and to reduce excessive risk avoidance. Firms with CSR focus must balance the interests of multiple stakeholders, and therefore, must allocate resources to satisfy both investing and noninvesting stakeholders’ interests. Using five measures of corporate risk taking and a sample of 1,718 U.S. firms during 1998 to 2011, we find that stronger CSR performance is associated with lower level of risk taking activities for firms with risk taking measures above the industry median. We also find some evidence that CSR performance increases risk taking for firms with risk taking measures below the industry median. 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 its impact on risk taking. CSR performance is positively associated with firm value because CSR reduces excessive risk taking and risk avoidance.