Corporate Social Responsibility and Directors' and Officers' Liability Risk: The Moderating Effect of Risk...

Area of Science:

• Business and Management
• Risk Management
• Corporate Governance

Background:

• Abundant theoretical arguments exist on corporate social responsibility (CSR) and firm liability risk.
• Empirical evidence on the relationship between CSR and personal liability risk for directors and officers is scarce.

Purpose of the Study:

• To investigate the relationship between CSR performance and the personal liability risk faced by a firm's directors and officers.
• To determine if CSR can serve as a risk management tool to mitigate liability risk.

Main Methods:

• Analysis of the relationship between CSR performance and directors' and officers' (D&O) insurance purchasing behavior.
• Examination of the impact of CSR on the insurance rate-on-line (premium-to-coverage ratio).
• Assessment of moderating effects of firm risk environment and sales growth.

Main Results:

• Firms with better CSR performance are more likely to purchase D&O insurance.
• Higher CSR performance is associated with a lower insurance rate-on-line.
• The risk-reduction effect of CSR is amplified in high-risk environments and for firms with higher sales growth.

Conclusions:

• CSR performance acts as a valuable risk management tool, mitigating personal liability risk for directors and officers.
• CSR can lead to reduced D&O insurance costs, particularly for firms operating in volatile sectors or experiencing rapid expansion.
• The findings underscore the financial benefits of strong CSR practices in corporate governance.