Corporate social responsibility and profit volatility: theory and empirical evidence

Corporate social responsibility (CSR) implies extra care for the well-being of stakeholders different from shareholders. In our theoretical model we show that, when this principle implies that more CSR-oriented companies incorporate stakeholders' well-being constraints, it translates into higher sensitivity of profits to economic shocks. Our empirical analysis finds support for this hypothesis showing that CSR attributes which relate to positive contributions to stakeholders' well-being significantly and positively affect idiosyncratic profit volatility. Our findings remain robust when controlled for endogeneity with instrumental variable estimates.