Corporate social responsibility and stock price crash risk

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This study investigates whether corporate social responsibility (CSR) mitigates or contributes to stock price crash risk. Crash risk, defined as the conditional skewness of return distribution, captures asymmetry in risk and is important for investment decisions and risk management. If socially responsible firms commit to a high standard of transparency and engage in less bad news hoarding, they would have lower crash risk. However, if managers engage in CSR to cover up bad news and divert shareholder scrutiny, CSR would be associated with higher crash risk. Our findings support the mitigating effect of CSR on crash risk. We find that firms' CSR performance is negatively associated with future crash risk after controlling for other predictors of crash risk. The result holds after we account for potential endogeneity. Moreover, the mitigating effect of CSR on crash risk is more pronounced when firms have less effective corporate governance or a lower level of institutional ownership. The results are consistent with the notion that firms that actively engage in CSR also refrain from bad news hoarding behavior, thus reducing crash risk. This role of CSR is particularly important when governance mechanisms, such as monitoring by boards or institutional investors, are weak. (C) 2014 Elsevier B.V. All rights reserved.
Publisher
ELSEVIER SCIENCE BV
Issue Date
2014-06
Language
English
Article Type
Article
Keywords

CONDITIONAL SKEWNESS; EARNINGS MANAGEMENT; INSTITUTIONAL INVESTORS; GOVERNANCE; MARKET; FIRM; PERFORMANCE; INFORMATION; DISCLOSURE; TESTS

Citation

JOURNAL OF BANKING & FINANCE, v.43, pp.1 - 13

ISSN
0378-4266
DOI
10.1016/j.jbankfin.2014.02.013
URI
http://hdl.handle.net/10203/244360
Appears in Collection
MT-Journal Papers(저널논문)
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