Can social capital and reputation mitigate political and industry-wide economic risk?

Research output: Working paper

16 Downloads (Pure)


Firms’ social capital, captured by corporate social responsibility (CSR), can serve as an operational hedging instrument for firm-specific negative shocks. This paper assess CSR’s hedging effectiveness against risks arising from political uncertainty and industry-wide economic shocks. We find that CSR has a significant mitigating effect on stock return volatility making it an effective reputational hedge against political risk such as gubernatorial elections, especially for closely contested elections. However, CSR’s hedging is effective only for market risk (stock volatility) and not for cash flow volatility. Meanwhile, a difference-in-difference estimation suggests that CSR is not an effective hedge against risk during industry-wide economic shocks. Finally, CSR’s mitigating effect on stock volatility is transient.
Original languageEnglish
Place of PublicationRochester, N.Y.
Number of pages50
Publication statusPublished - 28 Jan 2019


  • CSR
  • social capital
  • risk
  • gubernatorial elections
  • tariff shocks
  • operational hedge

Cite this