Gambling attitudes and corporate social responsibility

Based on the advanced prospect theory, this study argues that firms tend to overweight the positive tail of distribution hence in favor of positively skewed or lottery-like investments when facing low probability of large potential positive payoffs. Since corporate social responsibility (CSR) engagement puts greater emphasis on large potential (monetary and non-monetary) benefits, we hypothesize that CSR engagement is related to investors and local community gambling attitudes. Using a sample of 13,410 firm-year observations across 1,642 U.S. firms from 1996 to 2018, we find that firms with positive stock returns skewness tend to have greater CSR strength, which represents firms’ CSR engagements. Second, we find that local gambling attitudes, measured by the ratio of Catholics to Protestants adherences where firms’ headquarters are located, are positively related to CSR performance. Furthermore, local gambling attitudes are more positively related to institutional CSR than technical CSR. Our main results are robust after we control for potential endogeneity issue and under difference-in-difference analysis based on firms’ headquarters relocation. Therefore, this study shows that gambling attitudes could promote firms’ CSR initiatives to meet broader stakeholders’ interests.