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 journalNot applicablepeer-review

53 Scopus Citations
View graph of relations

Author(s)

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)1464-1482
Journal / PublicationStrategic Management Journal
Volume35
Issue number10
Early online date4 Jul 2013
Publication statusPublished - Oct 2014

Abstract

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

Citation Format(s)

Firm litigation risk and the insurance value of corporate social performance. / Koh, Ping-Sheng; Qian, Cuili; Wang, Heli.

In: Strategic Management Journal, Vol. 35, No. 10, 10.2014, p. 1464-1482.

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