Corporate social responsibility and stock price crash risk: Evidence from an Asian emerging market. Issue 10 (10th October 2016)

• Record Type: Journal Article
• Authors: Lee, Ming-Te
• Is Part Of: Managerial finance. Volume 42:Issue 10(2016)
• Page Start: 963
• Page End: 979
• Publication Date: 2016-10-10
• Subjects: Corporate governance -- Taiwan -- Corporate social responsibility -- Emerging market -- Crash risk; Corporations -- Finance -- Periodicals; Business enterprises -- Finance -- Periodicals; 658.1505
• DOI: 10.1108/MF-10-2015-0278
• Languages: English
• ISSNs: 0307-4358

Abstract

Abstract : Purpose: The purpose of this paper is to test opposing views of the relationship between corporate social responsibility (CSR) and stock price crash risk in a major Asian emerging stock market. Design/methodology/approach: This paper suggests an endogenous relationship between CSR and stock price crash risk. Hence, this paper uses two-stage least squares regression analysis to address the bias and inconsistency associated with endogeneity issues. Moreover, previous studies argue that the level of effectiveness of corporate governance significantly affects firm-specific stock price crash risk. Thus, this paper further divides the overall sample into two sub-samples according to the median of the corporate governance index. Furthermore, this paper investigates the impact of CSR on stock price crash risk under corporate governance. Findings: The empirical results show that CSR significantly mitigates Taiwanese stock price crash risk. This finding is consistent with the notion that socially responsible Taiwanese firms commit to a higher standard of transparency and engage in less bad news hoarding, thus reducing crash risk. The empirical results also show that CSR has a more pronounced effect in mitigating crash risk for Taiwanese firms with less effective corporate governance. Originality/value: The study findings indicate that CSR plays a more important role in reducing crash risk for Taiwanese firms with weak governance mechanisms.