We investigate the relationships among corporate social responsibility (CSR) engagement, organizational wrongdoing, and reputation risk. Our empirical analysis reveals that firms that are sanctioned for wrongdoing face increased reputation risk, while the firms engaging in CSR are able to reduce reputation risk. We predict that firms that engage in CSR are better able to manage reputational risk following sanctions for wrongdoing than their peers. Findings suggest that firms with higher CSR engagement reduce the effect of sanctions for wrongdoing on reputation risk, and therefore are subsequently able to restore their reputations and increase firm value. Taken together, our results suggest that CSR engagement can have both firm- and reputation-enhancing effects above and beyond its social benefit.
Keywords: corporate social responsibility; organizational wrongdoing; reputation risk