How corporate social responsibility reduces the risk of stock crashes

The practice of corporate social responsibility (CSR) by firms can play a significant role in mitigating the risk of stock price crashes, particularly in undervalued firms. Social CSR practices that benefit stakeholders play a greater mitigating role than governance and environmental initiatives, which have negligible impact. In their article in the Journal of Corporate Finance, Dumitrescu and Zakriya explain how they used a single framework to study the relationship between CSR, stock price crash risk, and firm valuation. Using data from over 35,000 US firms between 1991 and 2015, the pair analysed stock performance with MSCI Environmental, Social, and Governance (ESG) CSR data.