Financial economics

Epistemology

Accounting

Philosophy

Corporate social responsibility

Business

Econometrics

Economics

Marketing

Cournot competition

Empirical evidence

Microeconomics

Political science

Profit (economics)

Profit margin

Enterprise value

Product differentiation

Public relations

Industrial organization

Endogeneity

Systematic risk

Management Science

This paper presents an industry equilibrium model where firms have a choice to engage in corporate social responsibility (CSR) activities. We model CSR as an investment to increase product differentiation that allows firms to benefit from higher profit margins. The model predicts that CSR decreases systematic risk and increases firm value and that these effects are stronger for firms with high product differentiation. We find supporting evidence for our predictions. We address a potential endogeneity problem by instrumenting CSR using data on the political affiliation of the firm’s home state. This paper was accepted by Gustavo Manso, finance.

Corporate Social Responsibility and Firm Risk: Theory and Empirical Evidence