Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87499
Authors: 
Busch, Timo
Lehmann, Nils
Hoffmann, Volker H.
Year of Publication: 
2012
Series/Report no.: 
Tinbergen Institute Discussion Paper 12-102/IV/DSF40
Abstract: 
Certain types of corporate social responsibility (CSR) activities can generate an ‘insurance-like’ benefit for firms (Godfrey, 2005). Thus far, this risk management hypothesis has been verified for the effects of firm-specific negative events. We argue that this insurance-like benefit of CSR-activities can be equally expected in the context of long-term developments which threaten current business models. We develop our arguments for the incremental, long-term process of internalizing negative externalities. For this, we consider the negative externalities resulting from the emission of greenhouse gases (GHG) and perform a panel analysis of a sample of 1699 firms over a period of 7 years. Our results show that firms can reduce their market-based risk by curbing their GHG-emissions. We furthermore propose an opposing effect on accounting-based risk, but do not find empirical support for this. We conclude that CSR-activities aimed at reducing a firm’s exposure to specific long-term developments can be sound corporate risk management, even if such activities may not yet be profitable.
Subjects: 
GHG-emissions
negative externalities
financial risk
corporate social responsibility
long-term developments
JEL: 
G30
M14
L20
Q20
Document Type: 
Working Paper

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