Terrorist Attacks, Corporate Social Responsibility, and Firm Value

47 Pages Posted: 7 Aug 2018 Last revised: 6 Mar 2024

See all articles by Trung K. Do

Trung K. Do

Danang University of Economics - The University of Danang

Henry Hongren Huang

National Central University

Albert Tsang

School of Business, Southern University of Science and Technology, China

Date Written: February 1, 2024

Abstract

Research problem: According to the World Economic Forum, terrorism is one of the main managerial concerns for companies located in countries around the world. However, there is surprisingly scant research on how terrorist attacks impact managerial decision-making. In this study, we fill this gap by investigating how terrorist attacks influence firms’ socially oriented activities, as measured by their investments in corporate social responsibility (CSR).


Motivation or theoretical reasoning: In light of the crucial role of CSR in financial markets and the growing apprehensions regarding terrorism risks, this study explores whether and to what extent firms’ CSR investments contribute to the resilience to terrorism risks. The motivation or theoretical reasoning for the research question is grounded in the idea that terrorist attacks create a unique set of circumstances that prompt firms to reconsider their socially oriented initiatives. We argue that firms impacted by such events tend to recognize the importance of demonstrating commitment to social responsibility in the aftermath of a crisis. Overall, the theoretical underpinnings of this study revolve around the notion that CSR becomes a strategic response for firms affected by terrorism, through which they address various stakeholder concerns, maintain legitimacy, and strategically manage their public image in the aftermath of a crisis.


Tested hypotheses: We empirically examine two key research questions in this study. First, we examine the effect of terrorist attacks on the CSR investments of publicly traded firms. Second, we examine whether and how the increase in CSR investments of publicly traded firms after terrorist attacks affects firm value.


Target population: Our study extends the limited research on the impact of terrorism on capital markets, which is an area of great concern to various stakeholders, including shareholders and corporate managers. The findings will also help researchers understand the determinants of CSR and the potential channels through which CSR creates value for shareholders.


Adopted methodology: Using a multivariate regression model and controlling for all other determinants of corporate CSR investment documented by prior studies, we test the effect of terrorist events on firms’ CSR investment. To reduce the concern that a growing awareness of the importance of CSR may explain the changes in firms’ investment in CSR over time, we use a difference-in-differences research design.


Analyses: Using a sample of 53 major terrorist attacks occurring in the U.S. between 1994 and 2015, this study examines the causal effect of terrorist attacks on firms’ CSR activities.


Findings: Our findings indicate that public firms located in close proximity to terrorist attacks (i.e., the impact firms) substantially increase their investment in CSR following those terrorist events, and that the increase in CSR investment is positively associated with firm value. We further observe a strengthened association between increased CSR and firm value when the CSR efforts of the impact firms attract greater media attention. In conclusion, our findings substantiate the hypothesis that firms exposed to higher levels of terrorism risk are more inclined to enhance their CSR investments. This inclination is driven by the dual impact of CSR efforts: not only do they contribute to bolstering stakeholders’ confidence in firms’ future performance, but they are also linked to increased returns in the aftermath of a terrorist attack.

Keywords: Terrorist attacks; CSR; firm value; media attention; visibility

JEL Classification: G10, K42, L82, M14

Suggested Citation

Do, Trung K. and Huang, Henry Hongren and Tsang, Albert, Terrorist Attacks, Corporate Social Responsibility, and Firm Value (February 1, 2024). International Journal of Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3215766 or http://dx.doi.org/10.2139/ssrn.3215766

Trung K. Do (Contact Author)

Danang University of Economics - The University of Danang ( email )

71 Ngu Hanh Son
My An Ward, Ngu Hanh Son District
Danang, 550000
Vietnam

Henry Hongren Huang

National Central University ( email )

No. 300, Zhongda Road
Chung-Li Taiwan, 32054
Taiwan

Albert Tsang

School of Business, Southern University of Science and Technology, China ( email )

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