The Impact Of Corporate Social Responsibility On Idiosyncratic Risk

Corporate irresponsible behaviors were taking place frequently recent years in China, e.g. melamine event in dairy industry, clenbuterol event of Shuanghui, financial fraud of Wanfu Biotechnology. All these events triggered adverse reaction from the stakeholders especially investors, government and other stakeholders. Accordingly, corporate social responsibility (CSR) began to attract more and more attention from the public. Besides, domestic government departments have introduced all kinds of documents and policy to advocate enterprises to perform social responsibility. As China is an emerging economy, Chinese companies are still on the growing stage of growth of its life cycle.It means the practice circle still have doubts about the economic consequences of CSR. Academia has also concerned about whether corporate social responsibility to create value. Therefore, the study on this topic has theoretical value and practical significance. We can not only obtain the further empirical evidence about the relationship between CSR engagement and idiosyncratic risk, but also promote the enterprises to fulfill social responsibility.With the panel data of the listed companies in Chinese A share market from the year 2010 to 2014, we examined the way in which CSR affects idiosyncratic risk based on the stakeholders theory, symmetric information theory and signaling theory. With the full samples, we found that firms with higher rating of CSR enjoy lower idiosyncratic risk. It is also verified that all dimensions of CSR play a significant role in deducing idiosyncratic risk but in different degrees. Compared to the companies who did not disclose CSR report, the CSR engagement of companies who disclosed CSR report had more significant effect on idiosyncratic risk.Considering the influence of different regional marketization on enterprises and stakeholders, sample firms are classified into eastern group, central group and western group. It is demonstrated that relationship between CSR and the idiosyncratic risk is more significant in eastern group rather than central group and western group. Our results have important significance to enhance the CSR awareness of companies and perfect CSR relevant policies and regulations.