Exploiting a novel measure of firm-level political risk based on earnings conference calls, we explore the effect of political exposure on corporate social responsibility (CSR). We show that firms more exposed to political risk invest significantly more in CSR activities. This finding is consistent with the risk-mitigation hypothesis, which posits that CSR produces moral capital that safeguards the firm in case of a negative event. Hence, firms exposed to more political risk engage in more CSR activities to take advantage of its insurance-like effect. An increase in political exposure by one standard deviation raises CSR engagement by 27.95%.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics