The Relationship between Corporate Social Responsibility and Enterprise Risk Management: An Empirical Examination

We investigate the relationship between a firm's corporate social responsibilities (CSR) and enterprise risk management (ERM) across different stages of risk management (i.e. risk identification, risk integration and risk treatment), and analyze the interaction effect between CSR and ERM on firm market value. We empirically examine our proposed relationships using 847 North American publicly traded firms between 2002 and 2011. Our results suggest that: (1) overall, firms with more successful CSR strategies are more likely to adopt ERM; (2) specifically, corporate governance is the most important dimension in CSR in determining the adoption of ERM, followed by environment, product, employee relations and diversity; and (3) once adopted, ERM tends to negatively moderate the relationship between CSR and firm market value. We argue that investors perceive ERM and CSR to be substitutive in managing a firm's social and environmental risks, and thus only value CSR performance when ERM is absent. For firms with ERM, however, increasing CSR performance leads to a decrease in market value. Managerial implications and theoretical contributions are provided.