The downside of being responsible: Corporate Social Responsibility and tail risk

This paper assesses the relationship between corporate social responsibility (CSR) and downside equity tail risk, a field of research that has so far been neglected. Using global equities data over the period of January 2003 to December 2011, inclusive, the downside tail risk of each company is estimated using techniques of extreme value theory and CSR is approached using stakeholder theory. Our findings show a significant relationship between certain aspects of CSR and downside tail risk. The nature of the relationship differs across region, CSR category and time. Furthermore, the relationships we found are sequential, which makes a causal link between CSR and tail risk plausible.