Corporate Social Responsibility and Firm Risk : Implications from Employee Satisfaction

This paper investigates corporate social responsibility (CSR) from the perspective of firm risk reduction. Consistent with human relations theories of the firm, the results reveal a statistically positive employee reaction to firms' active CSR efforts using Fortune Magazine's reputation data. Additionally, I find that higher CSR firms are associated with lower executive/CEO turnovers, which further explains that CSR acts a valuable recruitment tool of companies. Finally, I identify that higher employee satisfaction improves employee loyalty and reduces firms' systematic risk. In my empirical tests, I address potential endogeneity concerns by instrumenting CSR using data on the political affiliation of the firm's headquartered county. Overall, this CSR study contributes to the literature by identifying an important mechanism that higher corporate social performance Reduces firm risk and leads to stronger corporate performances through the channel of employee Satisfaction