This paper investigates the relationship between corporate social responsibility (CSR) and the distribution of stock returns for an international sample. While stock price synchronicity increases with high corporate social performance in Europe, Japan, and the United States, CSR has a consistent significant mitigating effect on crash risk only in the U.S. sample and to a weak extent in Europe. In contrast, firms from the Asia-Pacific region with a high level of CSR are likely to have higher crash risk. The results are stable with regard to several variations in methodology. The results are consistent with findings that CSR can reduce crash risk in the environment of high corporate governance. In particular, both firms which actively apply sustainable management approaches and the monitoring of dedicated socially responsible investors direct firms away from bad news hoarding behavior, thus reducing crash risk. However, an optimal level of CSR activities appears to exist beyond which further CSR investment may not create sufficient social benefits to outweigh the financial costs.
By: Sebastian Utz, University of Regensburg – Department of Finance
You can find the SSRN article here