Articlegreen2013

Firm litigation risk and the insurance value of corporate social performance

Ping‐Sheng Koh · Cuili Qian · Heli C. Wang

482 citations0/0 files storedStrategic Management Journal

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Corporate Social Responsibility Reporting Corporate Identity and Reputation Corporate Governance and Financial Management

Abstract

This paper advances the risk management perspective that superior social performance enhances firm value by serving as an ex ante valuable insurance mechanism. We posit that good social performance is more valuable as an insurance mechanism for firms with higher litigation risks. Moreover, value generation of corporate social performance ( CSP ) depends on whether a firm has gained pragmatic legitimacy (i.e., a firm's financial health) and moral legitimacy (i.e., whether or not a firm operates in a socially contested industry) among its stakeholders. We find that the value of CSP as insurance against litigation risk is practically significant, adding 2 to 4 percent to firm value. But CSP is less likely to create value if the firm is in financial distress or is operating in socially contested industries. Copyright © 2013 John Wiley & Sons, Ltd.

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References

1983The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields 2004The iron cage revisited institutional isomorphism and collective rationality in organizational fields 2010Strategic management a stakeholder approach 1995Managing Legitimacy: Strategic and Institutional Approaches 2007The Social Responsibility of Business Is to Increase Its Profits 1979A Three-Dimensional Conceptual Model of Corporate Performance 1995The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications 1983The Iron Caged Revisited : Institutional Isomorphism and Collective Rationality in Organizational Fields

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