Firm political risk and corporate social responsibility

Abstract

We explore the impact of political risk on firms' corporate social responsibility (CSR) and find a negative effect, especially on CSR strengths. Firms facing higher political risk tend to prioritize compliance-driven CSR concerns over proactive CSR initiatives. This effect is more pronounced in firms with limited financial and operational flexibility, suggesting that CSR decisions align with overall investment strategies and are influenced by financial resources. We also show that political risk negatively affects CSR activities more during financial crises and gubernatorial elections. Overall, our study highlights the role of political risk and financial flexibility in shaping firms' CSR strategies.