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

The Effect of Corporate Social Responsibility Performance on Financial Risk 268 information will affect stock liquidity and liquidity risk because it can affect the information environment of the stock and result in changes in information asymmetric risk (Sadka, 2011; Lee et al . , 1993; Kim and Verrecchia, 1994; Krinsky and Lee, 1996; Affleck-Graves et al . , 2002). Specifically, several studies, including those by Lang and Maffett (2011), Sadka (2011), and Ng (2011), examine the effect of information quality on liquidity risk, and their findings suggest that information quality is negatively related to liquidity risk. In addition, higher financial reporting quality results in the lowering of the cost of debt and equity beta (Francis et al . , 2005). Therefore, firms with higher information quality enjoy lower market and liquidity risk. Although there is not a theoretical model which directly links CSP to market risk and liquidity risk, there is ample empirical evidence regarding the linkages between CSP and market risk or idiosyncratic risk. This evidence suggests that higher CSP lowers market and firm-idiosyncratic risk (Luo and Bhattacharya, 2009; Bouslah et al . , 2013; Kim et al . , 2014). Given that firms with higher financial reporting quality enjoy lower market and liquidity risk, many studies also 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). Thus, we suggest that socially responsible firms enjoy lower market and liquidity risk. This suggests that CSP is negatively related to market and liquidity risk, leading to hypothesis one. H1: Relatively superior CSR performance is negatively associated with a stock’s risk. H1-1: Relatively superior CSR performance is negatively associated with a stock’s market risk, market beta. 2 H1-2: Relatively superior CSR performance is negatively associated with a stock’s liquidity risk. 3. Research Design and Data 3.1 Research Design We extract CSR data from the KLD STATS database maintained by KLD Research and Analytics, Inc. The KLD STATS database includes approximately 3,100 companies and tracks their community, corporate governance, diversity, employee relations, 2 Although prior studies (e.g., Fernandes and Ferreira, 2008, 2009; Kim and Shi, 2011) find that higher stock synchronicity occurs in emerging markets, in most developed countries like the United States, stocks tend to move in a relatively unsynchronized manner.