Does CSR Reduce Idiosyncratic Risk? Roles of Operational Efficiency and AI Innovation

Corporate Social Responsibility (CSR) is playing an increasingly important role in firm risk management in Industry 4.0. To mitigate risk and improve operational productivity, Artificial Intelligence (AI), one of key disruptive technologies, has been widely employed in many industries. In this study, we examine the relationship among CSR, Idiosyncratic Risk (IR), Operational Efficiency (OE), and AI innovation in different ownership structures. The empirical analysis results show that CSR and OE can negatively influences firm IR. However, beyond some level, increasing CSR may increase IR indicating a U-shaped relationship. Regardless, OE strengthens CSR's reduction effect on IR and weakens its increasing effect. Meanwhile, AI innovation inhibits the U-shaped relationship between CSR and IR. Interestingly, we find that the influencing mechanisms vary among firms with different ownership structures. The U-shaped relationship between CSR and IR only exists in private and state-owned enterprises. In central-owned enterprises, it is only negative. This indicates that too much CSR may hurt private and state-owned enterprises, but it will not hurt central-owned enterprises in relation to IR. OE decreases IR for private enterprises, while it does not affect the IR of state-owned or central-owned enterprises significantly. We find surprisingly that AI innovation increases IR of private enterprises, while it decreases that of state-owned enterprises. The moderating effects of OE and AI innovation do not work for state-owned or central-owned enterprises. Finally, we discuss the managerial and practical implications of these findings