Controversial Industries, Regional Differences, and Risk: Role of CSR*

Abstract

Controversial industries such as the alcohol, gambling, tobacco, and firearms sectors have long suffered from organizational legitimacy problems. Using data covering 32 countries, we show that controversial industry firms' engagement in CSR initiatives has a substantial risk-decreasing effect, thereby increasing the probability of maintaining the social license to operate. The effect of CSR on firm risk, however, is more pronounced for firms in Europe and North America than in the Asia-Pacific region, suggesting that the CSR-risk association varies by region. Our results are consistent with the view of the "social license to operate" and the "differential recognition" hypotheses.