Publication Type

Journal Article

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

Additional URL

http://dx.doi.org/10.1002/smj.2171