The Impact of Corporate Social Responsibility on U.S. Restaurant Firm Risk

This study examines the impacts of Corporate Social Responsibility (CSR) initiatives focused on internal and external stakeholders on firm risk within the U.S. restaurant industry. Using data from publicly traded restaurant firms from 2002 to 2016, a two-way fixed effects model was applied to analyze the effects of CSR on systematic and unsystematic risks, utilizing Carhart's four-factor model for risk measurement. CSR activities were categorized into internal practices (employee relations, corporate governance, and diversity management) and external practices (community engagement, environmental sustainability, and consumer relations), with data sourced from the MSCI database. The findings reveal that internal CSR practices significantly reduce both systematic and unsystematic risks. In contrast, external CSR activities were found to significantly reduce only systematic risk, while the impact of external CSR on unsystematic risk was not significant. This research contributes to the strategic management literature by elucidating the roles of CSR in risk management, particularly within high-risk sectors like the restaurant industry. It offers practical insights for restaurant managers and owners on optimizing CSR strategies to enhance risk management and achieve long-term sustainability, advocating for a balanced approach to internal and external CSR activities.