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Firm litigation risk and the insurance value of corporate social performance
Author(s) -
Koh PingSheng,
Qian Cuili,
Wang Heli
Publication year - 2014
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.2171
Subject(s) - legitimacy , value (mathematics) , financial distress , enterprise value , corporate social responsibility , business , ex ante , market value added , actuarial science , economics , microeconomics , finance , law , machine learning , politics , political science , computer science , macroeconomics , financial system
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.