Does corporate social responsibility reduce idiosyncratic risk? The contingent role of opportunity costs

The final judgment on the relationship between corporate social responsibility (CSR) and idiosyncratic risk (IR, a key financial indicator) is yet to come. To resolve the contradictory findings of existing CSR–IR relationship studies, the study proposed a conceptual framework for the contingent role of opportunity cost in the relationship between CSR and IR. Using 23,019 firm-year observations of Chinese listed firms covering 3,193 firms, we discovered that CSR reduces IR. Moreover, we investigated the moderating effect of two crucial determinants on the opportunity cost of resource allocation: non-scale free resources and demand conditions. In particular, we found that firms with more non-scale free resources derive more IR-reduction benefits from CSR, while firms facing a high-demand product market gain less IR-reduction from CSR. Our results contribute to a greater comprehension of both the costs and benefits of CSR among scholars, managers, and investors.