Publication Type
Journal Article
Version
submittedVersion
Publication Date
10-2014
Abstract
This paper advances the risk management perspective that superior social performance enhances firm value by serving as an ex ante valuable insurance mechanism. We posit that good social performance is more valuable as an insurance mechanism for firms with higher litigation risks. Moreover, value generation of corporate social performance (CSP) depends on whether a firm has gained pragmatic legitimacy (i.e., a firm's financial health) and moral legitimacy (i.e., whether or not a firm operates in a socially contested industry) among its stakeholders. We find that the value of CSP as insurance against litigation risk is practically significant, adding 2 to 4 percent to firm value. But CSP is less likely to create value if the firm is in financial distress or is operating in socially contested industries.
Keywords
Corporate social performance, Insurance value, Risk management, Firm valuation models, Legitimacy, Corporate social responsibility
Discipline
Business Law, Public Responsibility, and Ethics | Corporate Finance | Strategic Management Policy
Research Areas
Strategy and Organisation
Publication
Strategic Management Journal
Volume
35
Issue
10
First Page
1464
Last Page
1482
ISSN
1097-0266
Identifier
10.1002/smj.2171
Publisher
Wiley
Citation
KOH, Ping-Sheng; QIAN, Cuili; and WANG, Heli.
Firm Litigation Risk and the Insurance Value of Corporate Social Performance. (2014). Strategic Management Journal. 35, (10), 1464-1482.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/3247
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Included in
Business Law, Public Responsibility, and Ethics Commons, Corporate Finance Commons, Strategic Management Policy Commons