Can corporate social responsibility mitigate systemic risk? Evidence from China

Purpose The main purpose of this study is to examine the effect of corporate social responsibility (CSR) on firms’ systemic risk. Additionally, it explores the potential channels through which CSR reduces systemic risk and tests the effects under different conditions. Design/methodology/approach This paper measures the firm’s systemic risk using the TENET method and shows the relationship between CSR and systemic risk based on a series of panel regressions. It considers two potential channels: company financial performance and external supervision, and tests the results under different conditions. Besides, it also shows the impact of CSR on two systemic risk contagion directions. Findings This paper shows that CSR is negatively related to firms’ systemic risk. We elucidate that financial performance and external supervision are two channels. Moreover, this effect is more prominent during higher economic policy uncertainty periods, among firms with intense industry competition, and in non-state-owned enterprises. Further analysis shows that CSR can simultaneously reduce both the reception and emission of systemic risk, with a more pronounced mitigating effect on reception. Originality/value This paper has two main contributions. First, it shows novel evidence on mitigating systemic risk from the perspective of firms’ non-financial information. Second, it expands the scope of CSR research by revealing its macro-level financial stability implications, while many previous studies show its impact on companies’ governance or return predictability.