The impact of the dimensions of social performance on firm risk

This paper examines the impact of the individual dimensions of social performance (SP) on firm risk (total and idiosyncratic) using 16,599 firm-year observations over the period 1991–2007. We find that firm risk for S&P500 members is positively affected by Employee, Diversity, and Corporate Governance concerns. On the other hand, Community (Diversity) strengths negatively (positively) affect their risk. As to non-S&P500 members, firm risk is positively affected by Employee concerns and Diversity strengths. However, firm risk of non-S&P500 members is negatively affected by Environment strengths. The direction of causation between firm risk and SP depends on the dimension examined.