臺大管理論叢 NTU Management Review VOL.30 NO.2

The Effect of Corporate Social Responsibility Performance on Financial Risk 266 2.5 CSR and Firm Risk Traditionally, information on CSR is divided into three information components: social, environmental, and economic. However, early studies focus more heavily on the environmental issues because complying with stringent environmental regulations can significantly increase production costs in polluting industries such as the pulp and paper, chemical, steel, and utility industries (Joshi, Krishnan, and Lave, 2001). In addition, the magnitude of the costs required to comply with environmental regulations and the unambiguous relationships between environmental disclosures and environmental performance have caused accounting standard setters and securities regulators to increase the level of accounting disclosures (Clarkson, Li, and Richardson, 2004; Clarkson, Li, Richardson, and Vasvari, 2008). Prior research suggests that accounting information is related to firm risk, and the quality of accounting information can directly affect a firm’s assessed covariances with other firms’ cash flows and, as a result, affect firm beta (Lambert et al . , 2007). Many studies suggest that socially responsible firms provide quality financial reports either through increased disclosure or mitigated earnings management (Gelb and Strawser, 2001; Chin et al., 2008; Kim et al . , 2012). In turn, higher financial reporting quality (as proxied by accruals quality) results in the lowering of the cost of debt and equity beta (Francis et al . , 2005). There is ample empirical evidence regarding the linkages between different types of CSR activities and different types of risk. For example, Luo and Bhattacharya (2009) look directly at the effects of CSR on idiosyncratic risk. They derive idiosyncratic risk from the Fama-French four-factor model and denote firm-idiosyncratic risk as the variance of the residuals of the model. The results show that higher CSP lowers firm-idiosyncratic risk. As a complement to the analyses on the relationship between CSP and idiosyncratic risk, they also test the impact of CSP on systematic risk. They find, similarly, that higher CSP lowers systematic risk. Bouslah et al . (2013) also look at several aspects of CSR and firm risk (total and idiosyncratic risk). They obtain social performance data from the KLD STATS database regarding strength and concern ratings for seven aspects of CSR. They measure total risk by the annualized standard deviation from daily stock returns over the past year, and idiosyncratic risk by the standard deviation of the residuals derived from the Carhart (1997) four-factor model. The results show the positive impacts of concerns on firm risk. However, the impact of strengths on firm risk are not uniform. They attribute the different impact of strengths on firm risk to market participants who do not agree on the