Corporate social responsibility and idiosyncratic risk in the restaurant industry : does brand diversification matter?

Purpose: This study aims to examine the link between corporate social responsibility (CSR) and idiosyncratic risk in the restaurant industry. The study also explores whether brand diversification magnifies the risk reduction effect of CSR in the restaurant industry. Design/methodology/approach: The study uses an unbalanced panel of 274 firm-year observations for 43 restaurant firms over the period 1995–2015. Models are estimated via fixed effect regression with robust standard errors. Findings: The study finds that CSR involvement reduces idiosyncratic risk and this risk reduction is intensified when restaurant firms operate a portfolio of brands. Research limitations/implications: The study’s findings are limited to restaurant industry, therefore, generalization of the findings to other industries requires delicate care. Brand diversification is a simple brand count due to a lack of brand sales data. Practical implications: CSR activities are not cost burden for restaurant firms. Indeed, CSR could be a viable strategy to reduce the volatility in future expected cash flows, hence the idiosyncratic risk. This risk reduction could help owners/managers access to capital with lower cost. Moreover, the study suggests that CSR practices should not be implemented in isolation from firm marketing strategy such as portfolio of brands. Originality/value: Although prior hospitality research puts forth some evidence using systematic risk as the measure of firm risk, this measure may not best suit the purpose in CSR context given that CSR is a direct, firm-specific strategy. Hence, the current study provides both new evidence with firm-specific, idiosyncratic risk and introduces an important contingency situation when the risk reduction effect of CSR would become more profound for restaurant firms.