Firm litigation risk and the insurance value of corporate social performance

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)1464-1482
Journal / PublicationStrategic Management Journal
Issue number10
Online published4 Jul 2013
Publication statusPublished - Oct 2014


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. Copyright © 2013 John Wiley & Sons, Ltd.

Research Area(s)

  • corporate social performance, firm valuation models, insurance value, legitimacy, risk management

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