Can social capital and reputation mitigate political and industry-wide economic risk?

Research output: Working paper

Abstract

Firms’ social capital, captured by corporate social responsibility (CSR), can serve as an operational hedging instrument for firm-specific negative shocks. This paper assess CSR’s hedging effectiveness against risks arising from political uncertainty and industry-wide economic shocks. We find that CSR has a significant mitigating effect on stock return volatility making it an effective reputational hedge against political risk such as gubernatorial elections, especially for closely contested elections. However, CSR’s hedging is effective only for market risk (stock volatility) and not for cash flow volatility. Meanwhile, a difference-in-difference estimation suggests that CSR is not an effective hedge against risk during industry-wide economic shocks. Finally, CSR’s mitigating effect on stock volatility is transient.
LanguageEnglish
Place of PublicationRochester, N.Y.
Number of pages50
DOIs
Publication statusPublished - 28 Jan 2019

Fingerprint

Corporate Social Responsibility
Economic risk
Social capital
Industry
Stock volatility
Elections
Hedge
Economic shocks
Stock return volatility
Cash flow volatility
Market risk
Hedging
Political risk
Political uncertainty
Operational hedging
Difference-in-differences
Hedging effectiveness

Keywords

  • CSR
  • social capital
  • risk
  • gubernatorial elections
  • tariff shocks
  • operational hedge

Cite this

@techreport{f8f11882375a42eb8c69acf037a7f971,
title = "Can social capital and reputation mitigate political and industry-wide economic risk?",
abstract = "Firms’ social capital, captured by corporate social responsibility (CSR), can serve as an operational hedging instrument for firm-specific negative shocks. This paper assess CSR’s hedging effectiveness against risks arising from political uncertainty and industry-wide economic shocks. We find that CSR has a significant mitigating effect on stock return volatility making it an effective reputational hedge against political risk such as gubernatorial elections, especially for closely contested elections. However, CSR’s hedging is effective only for market risk (stock volatility) and not for cash flow volatility. Meanwhile, a difference-in-difference estimation suggests that CSR is not an effective hedge against risk during industry-wide economic shocks. Finally, CSR’s mitigating effect on stock volatility is transient.",
keywords = "CSR, social capital, risk, gubernatorial elections, tariff shocks, operational hedge",
author = "Dimitris Andriosopoulos and Deepty, {Sheikh Tanzila}",
year = "2019",
month = "1",
day = "28",
doi = "10.2139/ssrn.3316174",
language = "English",
type = "WorkingPaper",

}

TY - UNPB

T1 - Can social capital and reputation mitigate political and industry-wide economic risk?

AU - Andriosopoulos, Dimitris

AU - Deepty, Sheikh Tanzila

PY - 2019/1/28

Y1 - 2019/1/28

N2 - Firms’ social capital, captured by corporate social responsibility (CSR), can serve as an operational hedging instrument for firm-specific negative shocks. This paper assess CSR’s hedging effectiveness against risks arising from political uncertainty and industry-wide economic shocks. We find that CSR has a significant mitigating effect on stock return volatility making it an effective reputational hedge against political risk such as gubernatorial elections, especially for closely contested elections. However, CSR’s hedging is effective only for market risk (stock volatility) and not for cash flow volatility. Meanwhile, a difference-in-difference estimation suggests that CSR is not an effective hedge against risk during industry-wide economic shocks. Finally, CSR’s mitigating effect on stock volatility is transient.

AB - Firms’ social capital, captured by corporate social responsibility (CSR), can serve as an operational hedging instrument for firm-specific negative shocks. This paper assess CSR’s hedging effectiveness against risks arising from political uncertainty and industry-wide economic shocks. We find that CSR has a significant mitigating effect on stock return volatility making it an effective reputational hedge against political risk such as gubernatorial elections, especially for closely contested elections. However, CSR’s hedging is effective only for market risk (stock volatility) and not for cash flow volatility. Meanwhile, a difference-in-difference estimation suggests that CSR is not an effective hedge against risk during industry-wide economic shocks. Finally, CSR’s mitigating effect on stock volatility is transient.

KW - CSR

KW - social capital

KW - risk

KW - gubernatorial elections

KW - tariff shocks

KW - operational hedge

U2 - 10.2139/ssrn.3316174

DO - 10.2139/ssrn.3316174

M3 - Working paper

BT - Can social capital and reputation mitigate political and industry-wide economic risk?

CY - Rochester, N.Y.

ER -