The Impact of Social Responsibility on the Adoption of Sustainable Development Practices on the risk of stock price collapse.

BACKGROUND

Corporate social responsibility (CSR) and sustainable development practices have become increasingly important for firms seeking to address stakeholder expectations and improve corporate sustainability. However, their implications for capital-market risk, particularly stock price crash risk, remain unclear in emerging markets. This study examines the relationship between CSR and stock price crash risk and investigates whether the adoption of sustainable development practices mediates this relationship among Saudi-listed firms.

METHODS

The study examines 95 non-financial companies listed on the Saudi Exchange in 2023, selected from an initial population of 231 listed companies based on predefined eligibility criteria. CSR and sustainable development practices were measured using multi-item instruments adapted from prior literature. Stock price crash risk was assessed using three commonly employed indicators: CRASHdummy, negative conditional skewness (NCSKEW), and down-to-up volatility (DUVOL). The hypothesized direct and indirect relationships were estimated using variance-based partial least squares structural equation modeling (PLS-SEM) with SmartPLS 4. Measurement-model reliability and validity were assessed before testing the structural paths and mediation effect.

RESULTS

CSR was not significantly associated with stock price crash risk. In contrast, CSR was positively and significantly associated with the adoption of sustainable development practices. Sustainable development practices were also positively associated with stock price crash risk. The indirect relationship between CSR and stock price crash risk through sustainable development practices was statistically significant, supporting the proposed mediating role of sustainable development practices.

CONCLUSIONS

The findings indicate that CSR does not have a statistically significant direct relationship with stock price crash risk among Saudi-listed firms. Instead, its association with crash risk operates indirectly through firms' adoption of sustainable development practices. These results highlight the importance of considering sustainability practices as a potential mechanism linking corporate social responsibility with capital-market outcomes in an emerging-market setting.