Abstract
The empirical findings in this paper show that CSR mitigates the firm-specific risk of Chinese firms, but exacerbates the market risk since CSR is associated with higher market risk. In addition, the returns of CSR-minded firms rise faster than those of less CSR-minded firms when the stock market return is positive, indicating that Chinese investors value firms’ CSR performance when the stock market is up. The ‘upside’ effect is driven by the positive news effect and reliability effect, especially pronounced for firms with a lower level of government ownership and firms whose CSR policies are less driven by agency problems. Key words: Corporate social responsibility, firm risk, idiosyncratic risk, market risk, China
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