Doing good for avoiding peril: can CSR help firms shelter from risks?

Purpose This study aims to focus on the risk-mitigating role of corporate social responsibility (CSR) and examine two governance mechanisms’ (board monitoring and chief executive officer (CEO) power) moderating role in this connection. Design/methodology/approach The authors run fixed-effect panel regression using data covering 13 years, 10 major business sectors affiliated with 65 countries and 55,475 observations obtained from Thomson Reuters Eikon. Findings The analysis reveals that CSR performance significantly reduces firm risk. This outcome holds for composite CSR proxy and its three pillars, namely, environmental, social and governance. Further investigation confirms that 9 indicators out of 10 under those three pillars are also influential in mitigating firm risk except the shareholders’ rights indicator. The first moderation analysis indicates that board monitoring and environmental and social performance are substitutes for alleviating firm risk. The second moderation analysis outlines that CSR performance of firms with powerful CEOs exacerbates the firm risk. Originality/value First, although prior studies intensively examine the performance-enhancing role of CSR, its risk-mitigating role is not sufficiently addressed on a global scale. Second, rather than just investigating the direct association, this study considers the moderating role of board monitoring and CEO power in this relationship so that we suggest useful theoretical and managerial implications. In doing so, we shed light on substitutive or complementary effects between CSR performance and board monitoring as well as stewardship role or managerial opportunism created by powerful CEOs via manipulating CSR performance.