This study investigates the effects on organization’s financial performances of, first, the extent to which the organizations are involved in controversial business activities, and second, their level of social performance. These companies can be considered non-socially responsible given the harmful nature of the activities they are involved in. Managers of these companies may still have incentives to pursue socially responsible actions if they believe that engaging on those actions will help them to achieve legitimacy and improve investors’ perception about them. (...) We develop a comprehensive methodology to investigate these corporate social performance (CSP)-related effects in a complex but specific setting. To this end, we analyze a sample of 202 US firms for the period 2005–2008 using a novel method in this area: partial least squares. Our results indicate that, contrary to the general findings in prior literature, companies involved in controversial business activities which engage in CSP do not directly reduce the negative perception that stakeholders have about them. Instead, we found evidence of a positive mediation effect of CSP on financial market-based performance through innovation. (shrink)

Prior research on sustainability in business often assumes that decisions on social and environmental investments are made for instrumental reasons, which points to causal relationships between corporate financial performance and corporate social and environmental commitment. In other words, social or environmental commitment should predict higher financial performance. The theoretical premise of sustainability, however, is based on a systems perspective, which implies a tighter integration between corporate financial performance and corporate commitment to social and environmental issues. In this paper, we describe (...) the important theoretical differences between an instrumental and integrative logic in managing business sustainability. We test the presence of each logic using data from 738 firms over 13 years and find evidence of integrative logic applied in business. (shrink)

Since the 1970s, many Anglo-American studies have investigated the theme of corporate social responsibility (CSR) and its costs and benefits. Most studies have tried to test, largely in samples of multiple industries, the relationship between corporate social performance (CSP) and corporate financial performance (CFP). These analyses, however, have produced conflicting results and any attempt to give a generalized and coherent conclusion has proved inadequate. This article examines the ways CSP can be proxied and investigates the possible relationship between CSP (measured (...) by ethical rating) and CFP (measured by market and accounting ratios) in the banking sector using correlation methodology. It emerges that there is no statistically significant link between CSP and CFP. (shrink)

Nanotechnologies are enabling technologies which rely on the manipulation of matter on the scale of billionths of a metre. It has been argued that scientific uncertainties surrounding nanotechnologies and the inability of regulatory agencies to keep up with industry developments mean that voluntary regulation will play a part in the development of nanotechnologies. The development of technological applications based on nanoscale science is now increasingly seen as a potential test case for new models of regulation based on future-oriented responsibility, lifecycle (...) risk management, and upstream public engagement. This article outlines findings from a project undertaken in 2008–2009 for the UK Government’s Department of Environment, Food and Rural Affairs (DEFRA) by BRASS at Cardiff University, involving an in-depth survey both of current corporate social responsibility (CSR) reporting in the UK nanotechnologies industry, and of attitudes to particular stakeholder issues within the industry. The article analyses the results to give an account of the nature of corporate social performance (CSP) within the industry, together with the particular model of CSR operating therein (‘do no harm’ versus ‘positive social force’). It is argued that the nature of emerging technologies requires businesses to adopt particular visions of CSR in order to address stakeholder issues, and that the nanotechnologies industry presents specific obstacles and opportunities in this regard. (shrink)

This paper presents a study that identifies a stakeholder-defined concept of Corporate Responsibility (CR) in the context of a UK financial service organisation in the immediate pre-credit crunch era. From qualitative analysis of interviews and focus groups with employees and customers, we identify, in a wide-ranging stakeholder-defined concept of CR, six themes that together imply two necessary conditions for a firm to be regarded as responsible—both corporate actions and character must be consonant with CR. This provides both empirical support for (...) a notable, recent theoretical contribution by Godfrey (in Acad Manag Rev 30:777–798, 2005 ) and novel lessons for reputation management practice. (shrink)

Significant research has found that corporations have a social responsibility beyond maximizing shareholders' value. This study examines the effect of high-profile corporate bankruptcies on perception of corporate social responsibility. Undergraduate and graduate business students rated the importance of corporate social responsibility on profitability, long-term success and short-term success, before and after high-profile bankruptcies. The results indicated that students in general perceived corporate social responsibility to be more important to profitability and long-term success of the firm and less important to short-term (...) success after media publicity of corporate scandals. Several demographic factors such as gender, age and college major played a role in this perception. These findings have important implications for business education, especially as it relates to corporate social responsibility. (shrink)

Because of the importance of Confucian doctrines in shaping ethical business practices under Chinese leadership, revealing the roles of other Chinese ethical doctrines in modern Chinese leadership is informative. A thorough understanding of the ethical foundations of Chinese leadership is necessary for fruitful interaction with Chinese leaders, according to cultural fit theory. The present study illustrates the philosophical foundations of business management, based on dialogues with five eminent corporate executive officers (CEOs). It reveals that the CEOs practice a style of (...) Chinese leadership synthesizing Confucian, Daoist, Mohist, and Legalist doctrines. The Confucian doctrines advocate benevolence, harmony, learning, loyalty, righteousness, and humility. They are the most prevalent tenets that support paternalism and collectivism. The Daoist doctrines emphasize flexibility and reversion (e.g., the principle that the weak can defeat the strong). They bolster the leader’s forbearance. The Mohist doctrines underpin thrift and working with the masses whereas the Legalist doctrines inculcate self-control and innovativeness. Hence, contemporary Chinese leadership does not rely exclusively on Confucian ethics and this reflects evolution over 1000s of years. (shrink)

This paper investigates the corporate social responsibility (CSR) structures of U.S. listed firms. We find evidence of a general tendency towards CSR specialization with almost three-quarters (73.91%) of these firms focusing on a single CSR dimension. The degree of specialization varies across industries and the single CSR dimension focused on also varies for industries with similar degrees of specialization. We find that firms with higher exposures to CSR concerns, international activities, larger size, and higher financial slack tend to diversify across (...) multiple CSR dimensions. More importantly, we find evidence that diversified CSR structures positively affect a firm’s value relative to a control group before and during the 2008 financial crisis. Our findings have important implications for corporate and portfolio managers, investors, and policy makers. (shrink)

Prior research showed that corporate divestitures could help firms restore their strategic controls and long-term focus. This suggests that divestiture activities may have implications for firms’ commitment to corporate social responsibility following divestitures. Drawing from the attention-based view of the firm, we examine this underexplored yet important research question. We propose that firms’ divestiture scale is positively associated with their commitment to post-divestiture CSR. However, this relationship is weakened among firms facing pre-restructuring financial decline and selling more related businesses, but (...) strengthened among divesting firms with a new CEO. Using a longitudinal dataset of U.S. firms, we found support for most of our hypotheses. These findings suggest that corporate divestitures may offer a meaningful path to stakeholder value creation through better CSR performance. (shrink)

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)

This paper examines whether a firm’s financial performance is associated with superior environmental, social and governance scores in emerging markets of multinationals in Latin America. The study addresses the current research gap on this issue; it develops hypotheses and tests them by applying linear regressions with a data panel drawn from the Thomson Reuters Eikon™ database to analyse data on 104 multinationals from Brazil, Chile, Colombia, Mexico and Peru between 2011 and 2015. The results suggest that the relationship between the (...) ESG score and FP is significantly statistically negative. Furthermore, in examining environmental, social and governance separately to accurately determine each variable’s relationship to multilatinas’ FP, the results reveal a negative relationship. Finally, the empirical analysis provides evidence for a moderating effect of financial slack and geographic international diversification on the relationship between ESG dimensions and firms’ FP. This study furthers understanding of the relationship between ESG dimensions and FP for the Latin American business context. (shrink)

ABSTRACT:This study examines whether the empirical evidence on the relationship between corporate social performance (CSP) and corporate financial performance (CFP) differs depending on the publication outlet in which that evidence appears. This moderator meta-analysis, based on a total sample size of 33,878 observations, suggests that published CSP-CFP findings have been shaped by differences in institutional logics in different subdisciplines of organization studies. In economics, finance, and accounting journals, the average correlations were only about half the magnitude of the findings published (...) in Social Issues in Management, Business Ethics, or Business and Society journals (mean corrected correlation coefficientof.22 vs..49, respectively). Specifically, economists did not find null or negative CSP-CFP correlations, and average findings published in general management outlets (=.41) were closer to Social Issues in Management, Business Ethics, and Business and Society results than to findings reported in economics, finance, and accounting journals. (shrink)

The relationship between corporate social responsibility and corporate financial performance has long been a central and contentious debate in the literature. However, prior empirical studies provide indefinite conclusions. The purpose of this study is to review systematically and quantify the CSR–CFP link in a meta-analytic framework. Based on 119 effect sizes from 42 studies, this study estimates that the overall effect size of the CSR–CFP relationship is positive and significant, thus endorsing the argument that CSR does enhance financial performance. Furthermore, (...) this work sheds light on the causal relationship between CSR and CFP. Subsequent financial performance is associated with prior social responsibility, while the reverse direction is not supported. This finding supports the instrumental stakeholder theory. As predicted, the meta-analysis results indicate that the measurement strategies of the two key constructs of CSR and CFP explain some variations of the CSR–CFP relationship. Last, this study examines the moderating effect of the environmental context on the CSR–CFP link. This work proposes that CSR in the developed world, with a relatively mature institutional system and efficient market mechanism, will be more visible than CSR in the developing world. The results show that the CSR–CFP relationship is stronger for firms from advanced economies than for firms from developing economies. (shrink)

The World Bank recently noted: “Social license to operate has traditionally referred to the conduct of firms with regard to the impact on local communities and the environment, but the definition has expanded in recent years to include issues related to worker and human rights”. In this paper, we examine a factor that can influence the kind of work conditions that can facilitate or obstruct a firm’s attempts to achieve the social license to operate. Specifically, we examine the empirical association (...) between a company’s employee practices and the religiosity of its local community by investigating their fixed and endogenous effects. Using a large and extensive U.S. sample, we find a positive association between the “employee friendly” practices of a firm and the religiosity of the local community after controlling for several firm characteristics. In addition, after mitigating endogeneity with the dynamic panel system generalized method of moment and after employing several other econometric tests, we still find a robust positive association between the religiosity of the local community and employee-friendly practices. Since recent research has shown that the firm’s treatment of its stakeholders is a key to achieving an SLO, and since employees constitute a highly significant stakeholder group, we interpret our results as supporting the view that religion is an important influence on the kinds of employee practices that can increase the likelihood that a firm will acquire the SLO. (shrink)

Prior research suggests that corporate credibility is associated with firm financial performance in developed countries. This article examines whether corporate credibility is related to firm performance using Economic Observer's rating of corporate credibility in China, the largest emerging market in the world. Based on a four-stage valuation model, we find that more reputable and credible firms outperform those with low ratings by almost 20% in 3-year stock returns and have better 3-year net profit margins, return on equity, and sales growth. (...) This study is the first to directly examine the relationship between corporate credibility and firm performance in emerging markets such as China, and our results confirm that firms with high credibility exhibit better financial and market performance at least in the following 3 years. (shrink)

The relationship of corporate social responsibility to risk management has been treated sporadically in the business society literature. Using real options theory, I develop the notion of corporate social responsibility as a real option its implications for risk management. Real options theory allows for a strategic view of corporate social responsibility. Specifically, real options theory suggests that corporate social responsibility should be negatively related to the firm’s ex ante downside business risk.

This article explores the role of financial markets for sustainable development. More specifically, the authors ask to what extent financial markets foster and facilitate more sustainable business practices. The authors highlight that their current role is rather modest and conclude that, on the old paths, a paradoxical situation exists. On one hand, financial market participants increasingly integrate environmental, social, and governance criteria into their investment decisions, whereas on the other hand, in terms of organizational reality, there seems to be no (...) real shift toward more sustainable business practices. The authors identify two main challenges within the field of sustainable investments that are relevant for entering new avenues that may help overcome this situation. First, a reorientation toward a long-term paradigm for sustainable investments is important. Second, ESG data must become more trustworthy. From a theoretical point of view, the authors finally highlight the potential market consequences when ESG investment criteria are used. (shrink)

Although an important feature of firms’ corporate social responsibility, the strategic pressures behind firms’ corporate philanthropy are not well researched or understood. This research note argues that firms’ CP and firms’ corporate political activity may share common strategic antecedents; forces in firms’ political environment may shape both CP and CPA. Using S&P 500 data in a longitudinal analysis, the authors find evidence suggesting that industry-level political uncertainty increases firm propensity for engaging in both CP and CPA, above and beyond the (...) propensity to engage in either as a stand-alone strategy. The authors use this preliminary evidence to explore political marketplace contingencies for the relationship between CP and CPA. CSR literature indicates that CP can benefit firms by creating and enhancing their relational wealth and institutional legitimacy. Such benefits may also serve firm interactions with government policy makers—a dynamic largely ignored until recently. The authors’ findings may indicate that, due to its institutional signaling ability and impact on firms’ reputations, CP may allow firms to differentiate themselves or stand out from others when faced with political uncertainty, and that these outcomes should be considered when firms engage in CP. (shrink)

Prior research suggests that Corporate Environmental Performance enables businesses to build strong corporate image and reputation, thus leading to improved firm financial performance. However, studies relating to the relationship between CEP and firm risk are scarce. This research intends to bridge the gap in the literature by examining whether CEP helps firms to reduce their financial risk. Results of the Ordinary Least Squares regression with fixed effects provide strong evidence that environmental performance is negatively associated with firm volatility and firm (...) downside risk. The results are robust after controlling for moderating effects such as financial, institutional and environmental management. (shrink)

The authors review three theoretical approaches to strategic corporate social responsibility (CSR), which can be defined as voluntary CSR actions that enhance a firm’s competitiveness and reputation. The end result of such activities should be an improvement in financial and economic performance. Based on an overview of recent empirical evidence, the authors conclude that economic theories of strategic CSR have the greatest potential for advancing this field of inquiry, although theories of strategic leadership should also be incorporated into this perspective. (...) In the remainder of the article, they provide focused summaries of the articles presented in this special issue and outline an agenda for future research on strategic CSR and environmental sustainability. (shrink)

This article investigates the role of commonly specified control variables in moderating the relationship between corporate social performance (CSP) and corporate financial performance (CFP). In addition, there are separate measures for positive (strengths) social actions, and for negative (concerns) social actions. The results support the positive relationship between CSP and CFP. The best model, as determined using factorial analysis of variance, is one which has the following control variables: size, industry, risk, and research and development expenditures. In examining the CSP/CFP (...) relationship, researchers must control for these variables, in order to properly specify the model. (shrink)

The role of responsible leadership—for each leader and as part of a leader’s collective actions—is essential to global competitive success (Doh and Stumpf, Handbook on responsible leadership and governance in global business, 2005 ; Maak and Pless, Responsible leadership, 2006a . Failures in leadership have stimulated interest in understanding “responsible leadership” by researchers and practitioners. Research on responsible leadership draws on stakeholder theory, with employees viewed as a primary stakeholder for the responsible organization (Donaldson and Preston, Acad Manag Rev 20(1):65–91, (...) 1995 ; Freeman, Strategic management: a stakeholder approach, 1984 ; Mitchell et al., Acad Manag Rev 22:853–886, 1997 ; Phillips and Freeman, Stakeholder theory and organizational ethics, 2003 . We define and operationalize responsible leadership from the perspective of employees and their views of the actions of their leaders. Drawing on a comprehensive survey of 28 Indian and global organizations operating in India, we report the results from 4,352 employees on the relationship between responsible leadership, their pride in and satisfaction with their organization, and retention 1 year later. Strong associations were found among these variables suggesting that responsible leadership—employee perceptions of the support they receive from managers, the HR practices, and corporate socially responsible actions—may be an overarching construct that connects them to the organization. (shrink)

The question of whether corporate social responsibility (CSR) has a positive impact on firm value has been almost exclusively analysed from the perspective of the stock market. We have therefore investigated the relationship between the valuation of Euro corporate bonds and the standards of CSR of mainly European companies for the first time in this article. Generally, the debt market exhibits a considerable weight for corporate finance, for which reason creditors should basically play a significant role in the transmission of (...) CSR into the valuation of financial instruments. Given that socially responsible firms are often regarded as economically more successful and less risky, they should have lower risk premia. The results of the empirical analysis, however, reveal that based on an extensive data panel the risk premium for socially responsible firms – according to the classification by SAM Group – was ceterius paribus higher than for non-socially responsible companies. However, only one case of the models investigated was weakly significant. Thus, largely the relationship has to be classified as marginal; so CSR has apparently not yet been incorporated into the pricing of corporate bonds. (shrink)

We investigate the association between a wide range of community-level environmental, social, and governance (ESG) outcomes and the credit risk of U.S. municipal finance fixed-income securities. We develop a novel dataset of multiple ESG outcomes for U.S. counties and connect it to a 2001-2020 panel of municipal bonds issued within those counties. Overall, we find supportive evidence that collective increases in community-level ESG factors (i.e., ESG outcomes) are associated with reductions in credit risk for U.S. municipal finance instruments over time. (...) We theorize that these associations arise from variations in investor perceptions and manifested changes in fiscal health over time as a function of changing ESG outcomes. Post hoc analyses leveraging quasi-exogenous shocks to uncertainty, as well as connecting ESG outcomes to various measures of fiscal health at the county-year level, and credit ratings at the bond-year level, help validate this theory. Our research suggests that even socially agnostic investors should investigate the environmental and social performance of a municipality as part of their credit due diligence. (shrink)

To mitigate risk, should companies signal a broad range of environmental, social, and governance initiatives or instead focus on only a few ESG issues? Drawing on signaling theory, we propose that a broad array of ESG initiatives generates not only signal consistency but also accelerating signal costs. Our empirical results support the resultant hypothesis of a curvilinear relationship between ESG scope and equity risk. In addition, this U-shaped curve seems to become steeper when firms face multiple media-reported ESG controversies. Overall, (...) our study qualifies the conventional wisdom that firms can reduce equity risk by attending to a wide variety of stakeholders and highlights the moderating impact of the firm’s media environment. (shrink)

This study revisits the relation between corporate performance and corporate social responsibility in the context of a major shift in firms’ credit risk status. Relying on corporate credit rating as a performance indicator, we examine whether firms under the scrutiny of rating agencies trade-off CSR engagement for credit quality improvement. To explore whether firms adjust their CSR engagement after a focal rating change, we focus on the investment–speculative grade threshold because of its importance in accessing the public debt market. We (...) find that firms that lose the investment grade rating subsequently increase CSR engagement. We also uncover that improving CSR engagement helps firms restore their credit ratings ex post. Our findings support the view of CSR engagement as a valuable risk management strategy. (shrink)

We draw upon the attention-based view of the firm to identify the conditions under which community influentials (CIs) on a board impact a firm’s corporate social performance (CSP). We test our hypotheses with a panel data set of Fortune 500 firms from 2004 to 2008, including 3,955 unique firm–director combinations (aggregated to the board level). Although CIs are often considered less powerful directors, we identify that when the firm is experiencing poor CSP, CIs have a positive effect on CSP. The (...) ability of CIs to influence CSP is also conditional on the access of CIs and other board members to socially oriented board ties. Our article points out that power and influence is contingent on the decision context and the relative knowledge of organizational players, and that players with relatively lower power may improve their status and command attention when they can offer exclusive insight into important issues. (shrink)

This study examines the relation between a firm’s business strategy and its corporate social responsibility performance. Using a comprehensive measure of business strategy based on the Miles and Snow theoretical framework, we find that firms following an innovation-oriented strategy are associated with better CSR performance than those following an efficiency-oriented strategy. Specifically, compared with defenders, prospectors engage in more socially responsible activities, fewer socially irresponsible activities, and perform better in both stakeholder- and third-party-related CSR areas. Taken together, our results suggest (...) that business strategy is an important determinant of CSR performance. Prospectors take advantage of CSR, as their innovation-oriented strategy allows them not only to benefit more from CSR, but also to have more tolerance for the uncertainty, risk, and long time-horizon associated with CSR engagement. (shrink)

Most research studying the corporate social performance –corporate financial performance link has utilized developed country samples. Also, this literature has generally focused on a wide variety of industries, ignoring the fact that certain sectors – such as controversial industries – have graver social and environmental issues. Hence, a gap exists in this tradition when it comes to emerging markets and controversial industries. This paper attempts to fill this void by providing preliminary evidence and insight on the matter. Based on an (...) exploration in six Latin American countries and five controversial industries, we find a negative bidirectional association between CSP and CFP. These results tend to contradict the mainstream conclusion of a positive bidirectional link, suggesting that institutional and market-level forces play a major role in shaping this relationship. (shrink)

This article tracks Corporate Social Responsibility (CSR) as an emergent organizational process that places the employee at its center. Predominantly, research on CSR tends to focus on external pressures and outcomes leading to a neglect of CSR as a dynamic and developing process that relies on the involvement of the employee as a major stakeholder in its co-creation and implementation. Utilizing case study data drawn from a study of a large multinational energy company, we explore how management relies on employees' (...) interaction with CSR as the process of initiation → implementation → maturation develops. Employee involvement grows from a minor element in the CSR initiation stage to a vital contributory factor in CSR's success in the later stages of the process. The article offers new insights into a processual and interactional approach to CSR that accounts for the actions of different actors involved at each stage. Most unusually, it also recognizes the dual impact this has on broader issues concerning the management and involvement of employees through CSR actions, and gaining legitimacy in the eyes of not only external stakeholders but internal too. (shrink)

The question of how an individual firm's social and environmental performance impacts its firm risk has not been examined in any empirical UK research. Does a company that strives to attain good environmental performance decrease its market risk or is environmental performance just a disadvantageous cost that increases such risk levels for these firms? Answers to this question have important implications for the management of companies and the investment decisions of individuals and institutions. The purpose of this paper is to (...) examine the relationship between corporate environmental performance and firm risk in the British context. Using the largest dataset assembled so far, with community and environmental responsibility (CER) rankings for all rated UK companies between 1994 and 2006, we show that a company's environmental performance is inversely related to its systematic financial risk. However, an increase of 1.0 in the CER score is associated with only a 0.028 reduction in its β. (shrink)

Recent research suggests that corporate social responsibility is institutionalised amongst multinational corporations. Yet CSR scholarship faces considerable challenges. An agreed definition is lacking, even amongst researchers adopting aligned approaches. Studies remain heavily focused on making a business case for CSR, despite its widespread acceptance into business practice. Few studies examine CSR’s on-ground implications for the communities it purports to help, favouring instead a macro-level focus. And concerns about CSR’s sincerity, motivations and ethics perpetuate questions about its integrity. This article argues (...) that new institutionalism is well placed to respond to these core challenges for CSR, and that new institutionalist perspectives can complement and enrich other common theoretical approaches. It contributes a social mechanism-based framework for CSR, identifying and exploring the key social mechanisms that institutionalise it; namely, discourse, mimesis, normative learning and coercion. Understanding CSR as an institution facilitates new and different explorations of its causes and effects and opens new avenues for scholarly inquiry. Illustrative examples from a 3.5-year study of CSR in the global mining industry are presented to explore the implications of CSR as an institution and to suggest pathways for innovative research. (shrink)

Corrupt regulatory environment encourages firms to deploy middlemen for speedy and assured acquisition of different services from regulatory agencies. Using a World Bank dataset of 2210 Indian manufacturing firms, this article examines how firms with middlemen deal with corrupt governmental agencies for its operational efficiency. Our results demonstrate that deployment of middlemen by the firms is often accompanied by a substantial increase in operational delay, relatively trigger more consumption of senior management’s time on regulatory disentanglement, enhance the likelihood/tendency to pay (...) bribe, and likely to face more court cases as a means of restitution of legal rights. As firm-specific attributes may contaminate our preliminary results, we utilized the propensity score framework to examine relationships among variables of interests. Our study contributes to the inconspicuous part of the corruption literature by attempting to present a comprehensive but indirect assessment of the functions of middlemen that predominantly remained unattended except some scattered descriptive, case-based anecdotal presentations. (shrink)

This article examines the empirical association between analyst coverage and corporate social responsibility (CSR) by investigating their simultaneous and causal effects, and its joint effects of CSR engagement and analyst coverage on firm risk. We find a positive association between the level and change of CSR engagement and the level and change of analyst coverage after considering simultaneity and causality. Based on the first-difference approach, we further find that the change in analyst following from the previous year affects the change (...) in CSR in the current period, whereas the change in CSR from the previous period does not influence the change in analyst following in the current period. Furthermore, we find that the change in CSR engagement as well as the interaction effect of changes in CSR and analyst coverage reduces the change of firm risk. When we examine the CSR strengths and concerns separately, analyst following does not significantly influence firms’ CSR strength but CSR concern activities decreases significantly as firms have more analyst followings. We further find the mediating role of financial analysts between CSR concerns (but not CSR strengths) and firm risk. We maintain that analysts provide indirect but additional social pressure to the firms to eventually reduce their irresponsible activities. Taken together, we interpret these results to support the stakeholder theory-based conflict-resolution explanation that considers CSR engagement as a vehicle to reduce conflicts of interest between managers and noninvesting stakeholders but not the overinvestment hypothesis that views CSR as a waste of valuable resources at the cost of shareholders. (shrink)

The contribution of this work is a classification of corporate social action underlying the Social Ratings Data compiled by Kinder Lydenburg Domini Analytics, Inc. We compare extant typologies of corporate social action to the results of our exploratory factor analysis. Our findings indicate four distinct latent constructs that bear resemblance to concepts discussed in prior literature. Akey finding of our research is that positive and negative social action are both empirically and conceptually distinct constructs and should not be combined in (...) future research. Additionally, we recommend that some prior research results be reconsidered to determine whether these newly derived measures might clarify some previous findings. (shrink)

In this preliminary study, the authors extend Swanson's concept of normative myopia (the propensity of executives to downplay or ignore the values at stake in their decision making) by using it as a point of reference for studying executives' preference for high pay dispersion. Specifically, the authors designed a survey to examine hypothesized relationships among myopia, personality, and executives' preference for highly stratified organizational pay structures. Data from 133 executive respondents suggest that myopic executives tend to prefer top-heavy compensation systems. (...) In addition, the findings point to an inverse relationship between the personality factor Agreeableness and normative myopia, with the former offsetting the latter. The authors reject the alternative hypothesis that gender influences both agreeableness and myopia and conclude with some implications for business and society, including Swanson's proposition that normative myopia at the top contributes to a neglectful form of corporate social performance. (shrink)

Corporate social responsibility (CSR) is one of the ways through which companies gain legitimacy. However, CSR actions themselves are subject to public skepticism because of increased public awareness of greenwashing and scandalous corporate behavior. Legitimacy of CSR actions is indeed influenced by the actions of the company but also is rooted in the basic cultural values of a society and in the ideologies of evaluators. This study examines the legitimacy of CSR actions of publicly traded forest products companies as compared (...) to family-owned forest products companies. Results indicate a lower legitimacy for CSR actions of publicly traded companies than for family-owned companies. The study also examines the effect of social responsibility orientation (SRO) of evaluators on the legitimacy accorded to companies' CSR actions. We found that SRO was negatively associated with legitimacy, especially for women. Perceived profitability of companies was negatively associated with legitimacy of CSR actions for publicly traded but not for family-owned companies. (shrink)

In this paper, we examine the relation between corporate social responsibility (CSR) and firm risk in controversial industry sectors. We develop and test two competing hypotheses of risk reduction and window dressing. Employing an extensive U.S. sample during the 1991-2010 period from controversial industry firms, such as alcohol, tobacco, gambling, and others, we find that CSR engagement inversely affects firm risk after controlling for various firm characteristics. To deal with endogeneity issue, we adopt a system equation approach and difference regressions (...) and continue to find that CSR engagement of firms in controversial industry sectors negatively affects firm risk. To examine the premise that firm risk is more of an issue for controversial firms, we further examine the difference between non-controversial and controversial firm samples, and find that the effect of risk reduction through CSR engagement is more economically and statistically significant in controversial industry firms than in non-controversial industry firms. These findings support the risk-reduction hypothesis, but not the window-dressing hypothesis, and the notion that the top management of U.S. firms in controversial industries is, in general, risk averse and that their CSR engagement helps their risk management efforts. (shrink)

Perceptions of a firm’s stance on corporate social responsibility (CSR) are influenced by its corporate marketing efforts including branding, reputation building, and communications. The current research examines CSR from the consumer’s perspective, focusing on antecedents and consequences of perceived CSR. The findings strongly support the fact that particular cues, namely perceived financial performance and perceived quality of ethics statements, influence perceived CSR which in turn impacts perceptions of corporate reputation, consumer trust, and loyalty. Both consumer trust and loyalty were also (...) found to reduce the perceived risk that consumers experience in buying and using products. From these significant findings, we draw several conclusions and implications, including the importance of enhancing firm focus toward its ethical commitment and long-term reputation. (shrink)

The question of how an individual firm's social and environmental performance impacts its firm risk has not been examined in any empirical UK research. Does a company that strives to attain good environmental performance decrease its market risk or is environmental performance just a disadvantageous cost that increases such risk levels for these firms? Answers to this question have important implications for the management of companies and the investment decisions of individuals and institutions. The purpose of this paper is to (...) examine the relationship between corporate environmental performance and firm risk in the British context. Using the largest dataset assembled so far, with community and environmental responsibility (CER) rankings for all rated UK companies between 1994 and 2006, we show that a company's environmental performance is inversely related to its systematic financial risk. However, an increase of 1.0 in the CER score is associated with only a 0.028 reduction in its β. (shrink)

Theoretical arguments regarding the effect of corporate social responsibility (CSR) on firm liability risk are abundant; however, empirical evidence about this relationship is scarce. We investigate the relationship between CSR and the personal liability risk of a firm’s directors and officers. We argue that companies with better CSR performance represent a better underwriting risk for directors’ and officers’ (D&O) insurance providers and, therefore, have a lower cost of insurance. Our results show that firms with better CSR performance are more likely (...) to purchase D&O insurance and have a lower premium-to-coverage ratio, known as the insurance rate-on-line. We also show that this risk-reduction effect is stronger for firms that operate in a high-risk environment and have higher sales growth. These results provide evidence that CSR can be used as a risk management tool to mitigate liability risk and suggest which firms benefit most from this effect. (shrink)

Stakeholder interest in the accuracy of Environment Social and Governance data and Corporate Social Responsibility authenticity has increased, as more companies are disclosing their ESG data. Employees are one of the most important stakeholders of a company, and they have access to more CSR information than other external stakeholders. Employees have a dual role of observing and participating in CSR. Employee perceptions of CSR authenticity play a key role in the positive effects of CSR. In this study, the research model (...) was analyzed through multilevel analysis to contribute to the literature on the mechanism by which CSR affects employees’ job attitudes and perceptions of CSR authenticity. First, hypothesis testing confirmed that external CSR is positively associated with employees’ perceptions of CSR authenticity. Second, CSR authenticity mediates a positive relationship between external CSR and emotional commitment. As the direct effect of external CSR on emotional commitment was not statistically significant, it could be confirmed that the full mediation relationship was significant through CSR authenticity. This study makes three theoretical contributions to the literature on employees’ perceptions of CSR. First, it examines the mechanism of the impact of CSR on employees. By examining the mechanism by which employees recognize and interpret CSR, this study attempts to uncover the black box that CSR affects employees. Second, this study contributes to the literature on CSR authenticity by explaining the mediating role of CSR authenticity in the relationship between CSR and employee job attitudes through construal level theory. Finally, this study contributes to the employee-based CSR literature by analyzing the effect of CSR as an organizational-level variable on emotional commitment as an individual-level variable through multilevel structural equation modeling. (shrink)

The impact of socially responsible corporate behavior on economic performance is a major preoccupation of managers today. This article explores the links between narrowly defined constructs: stakeholder orientation, environmental proactivity and profitability, from the perspectives of stakeholder theory and resource-based theory. We collected data on the food and beverage, and household and personal products industries. Using structural equation modeling, this paper makes two contributions. We found a negative link between companies simply having a higher stakeholder orientation and profitability. Importantly, however, (...) environmental proactivity not only had a positive impact on profitability, but also appeared to mediate the relationship between stakeholder orientation and profitability. In other words, if a company is more environmentally proactive, it will be more attentive to a broad array of stakeholders, and this will in turn contribute positively to profitability. (shrink)

We examine the link between a firm’s environmental and social disclosures and measures of its risk including total, systematic, and idiosyncratic risk. While we do not find any link between a firm’s E and S disclosures and its systematic risk, we find a negative and significant association between these disclosures and a firm’s total and idiosyncratic risk. These are novel findings and are consistent with the predictions of the stakeholder theory and the resource-based view of the firm suggesting that firms (...) which make extensive and objective E and S disclosures promote corporate transparency that can help them build a positive reputation and trust with their stakeholders. This in turn can help mitigate the firms' idiosyncratic/operational risk. These findings are important for all corporate stakeholders including managers, employees, and suppliers who have a significant economic interest in the survival and success of the firm. (shrink)

This study examines the relation between corporate social responsibility and institutional investor ownership, and the impact of this relation on stock return volatility. We find that institutional ownership does not strictly increase or decrease in CSR; rather, institutional ownership is a concave function of CSR. This evidence suggests that institutional investors do not see CSR as strictly value-enhancing activities. Institutional investors adjust their percentage of ownership when CSR activities go beyond the perceived optimal level. Employing the path analysis, we also (...) examine the mediating effect of institutional ownership on the relation between CSR and stock return volatility. We find that CSR decreases stock return volatility at a decreasing rate through its effect on institutional ownership. Our results remain robust under several different CSR measures and estimation methods. (shrink)

This study examines the impact that research and development (R&D) intensity has on corporate social responsibility (CSR). We base our research on the resource-based view (RBV) theory, which contributes to our analysis of R&D intensity and CSR because this perspective explicitly recognizes the importance of intangible resources. Both R&D and CSR activities can create assets that provide firms with competitive advantage. Furthermore, the employment of such activities can improve the welfare of the community and satisfy stakeholder expectations, which might vary (...) according to their prevailing environment. As expressions of CSR and R&D vary throughout industries, we extend our research by analysing the impact that R&D intensity has on CSR across both manufacturing and non-manufacturing industries. Our results show that R&D intensity positively affects CSR and that this relationship is significant in manufacturing industries, while a non-significant result was obtained in non-manufacturing industries. (shrink)

The goal of this paper is to describe the link between financial performance and the level of sustainability. In a novel approach, the paper classifies firms based on past financial success to address a potentially reciprocal relationship. For the groups of better and worse performing firms and for the entire sample, the above link is then tested, also accounting for non‐linearity in the relationship. We show that environmental management system (EMS) implementation as a proxy for a firm's sustainability level is (...) only positively associated with the financial performance of financially well‐performing firms. Conversely, it has a negative association with the performance of less good firms. We show that this implies that firms cannot change from good to bad performance, and vice versa, solely through the implementation of an EMS, and also that the result remains when introducing non‐linearity in the link. Based on this result, we discuss implications for the direction of causality. (shrink)

In this study, we examine the relation between corporate environmental responsibility and risk in U.S. public firms. We develop and test the risk-reduction, resource-constraint, and cross-industry variation hypotheses. Using an extensive U.S. sample during the 1991–2012 period, we find that for U.S. industries as a whole, CER engagement inversely affects firm risk after controlling for various firm characteristics. The result remains robust when we use firm fixed effect or an alternative measure of CER using principal component analysis or downside risk (...) measures. To address the concern of endogeneity bias, we use a system equations approach and dynamic system generalized methods of moment regressions, and continue to find that environmentally responsible firms experience lower risk. These findings support the risk-reduction hypothesis, but not the resource-constraint hypothesis, along with the notion that the top management in U.S. firms is generally risk averse and that their CER engagement facilitates their risk management efforts. Our cross-industry analysis further reveals that the inverse CER-risk association mainly comes from the manufacturing sector, whereas in the service sector, CER tends to increase firm risk. (shrink)