Although legitimacy theory provides strong arguments that environmental, social and governance disclosure and performance can help mitigate firm-specific risks, this relationship has been repeatedly challenged by conceptual arguments, such as ‘transparency fallacy’ or ‘impression management’, and mixed empirical evidence. Therefore, we investigate this relationship in the revelatory case of initial public offerings, which represent the first sale of common stock to the wider public. IPOs are characterised by strong information asymmetry between firm insiders and society, while at the same time (...) suffering from uncertainty in firm legitimacy, culminating in amplified financial risks for both issuers and investors in aftermarket trading. Using data from the United States, we demonstrate that voluntary ESG disclosure reduces idiosyncratic volatility and downside tail risk and higher ESG ratings have lower associated firm-specific volatility and downside tail risk during the first year of trading in the aftermarket. We provide theoretical arguments for the relationships observed, suggesting that companies striving for ESG performance and communicating their efforts signal their compliance with sustainability-related norms, thus acquiring and upholding a societal license to operate. ESG performance and disclosure help companies build their reputation capital with investors after going public. We also report that ESG disclosure is a more consistent proxy for ex-ante uncertainty as an indicator of aftermarket risk, thereby replacing some of the more conventional measures, such as firm age, offered in the existing literature. (shrink)

The business case constitutes an important instrumental motive for corporate social responsibility (CSR), but its relationship with other moral and relational motives remains controversial. In this article, we examine the articulation of motives for CSR among different stakeholders in Germany historically. On the basis of reports of German business associations, state agencies, unions, and nongovernmental organizations from 1970 to 2014, we show how the business case came to be a dominant motive for CSR by acting as a coalition magnet: the (...) vocabulary was used strategically by key policy entrepreneurs, while being ambiguous for flexible interpretations by different stakeholders, and thereby growing in attractiveness. As a resulting discourse coalition emerged among business, state, and civil society actors, the moral and relational motives for CSR became increasingly marginalized. The article offers a new approach to studying motives and contributes to understanding the complementary or competing nature of different motives for CSR. (shrink)

Corporate social responsibility positively impacts relationships between firms and customers. Previous research construes this as an outcome of customers’ warm glow that results from supporting firms’ benevolence. The current research demonstrates that beyond warm glow, CSR positively impacts firms’ sales through mitigating their customers’ perceptions of purchase risk. We demonstrate this effect across three conditions in which customers’ perceived risk of purchase is heightened, using both secondary data and two lab experiments. Under conditions of greater purchase risk, CSR positively impacts (...) both sales and customer purchase intentions to a greater extent than in conditions of lower purchase risk. In addition to measuring purchase risk as the mediating process behind these effects, we demonstrate that the effect of CSR on sales is stronger for those CSR activities that signal a stakeholder orientation. (shrink)