Customer Concentration, Corporate Social Responsibility and Idiosyncratic Risk

Abstract

This paper investigates the effect of customer concentration on corporate social responsibility (CSR) disclosures for a large sample of US firms. Using both corporate and government customer concentration, we find that firms with concentrated corporate customer are associated with significantly higher CSR scores, while firms with concentrated government customer are associated with significantly lower CSR scores. Our findings also suggest that corporate customer concentration is associated with significantly less CSR concern, whereas government customer concentration is associated not only with significantly less CSR strength, but also with significantly more CSR concern. Finally, we find that CSR activities mitigate the idiosyncratic risk for firms with corporate customer concentration, lending support to the arguments that firms with socially responsible practices have lower risk.

Keywords: Corporate social responsibility, customer concentration, idiosyncratic risk

JEL Classification: M14, M40, G30