Corporate social responsibility and firm-level systematic risk: The moderating effect of economic policy uncertainty

This paper investigates the relationship between corporate social responsibility (CSR) performance, firm-level systematic risk, and variations in economic policy uncertainty (EPU) levels. We examine a dataset of Chinese listed firms, finding that higher CSR performance should reduce firms' systematic risk during periods with relatively high levels of EPU. Furthermore, better satisfaction of primary and secondary stakeholders can help firms reduce systematic risk and increase performance when EPU is high. This evidence supports the implication of stakeholder theory that CSR investment can create substantial relational wealth essential to firms' risk management. Our results also imply that the CSR-systematic risk relationship can be positive when EPU is relatively low. Our findings indicate that the risk-mitigation benefits of CSR are state-contingent and can be better realized during downturns.