Too Much of a Good Thing? The Boomerang Effect of Firms’ Investments on Corporate Social Responsibility during Product Recalls

Abstract

Abstract Prior research shows that a good record of corporate social responsibility (CSR) has an insurance‐like effect on shareholder value in negative events. We posit and provide empirical evidence that excessive CSR activities can also cause a boomerang effect during negative events. In the setting of product recalls, we show that overinvestment in CSR has a boomerang effect on shareholder value when a company with excessive CSR activities announces a recall. Further analysis shows that the boomerang effect is exacerbated when institutional ownership is low or when customer awareness is high. Our study adds to the literature new insights on how CSR affects shareholder value during a reputation crisis.