Previous studies have proposed a virtuous circle between corporate social performance (CSP) and corporate financial performance (CFP). However, a key challenge researchers face when empirically examining this virtuous circle is endogeneity. In this paper, we apply a well-developed method—dynamic panel data (DPD) estimation—to account for endogeneity and conduct two studies to reexamine the causal relationship between CSP and CFP. Study 1 relies on KLD ratings from 1997 to 2012 as the measure of CSP. According to the results of Study 1, (...) although CFP measured as ROE may have a causal impact on CSP, it is doubtful whether there is a causal influence of CSP on CFP. Study 2 relies on the sustainability scores provided by Sustainalytics from 2009 to 2018 as the measure of CSP. Study 2 reports that CSP does not causally influence CFP and that CFP does not have a causal impact on CSP. Together, Study 1 and Study 2, using different measures for CSP, suggest that a virtuous circle between CSP and CFP may not exist. Our study suggests that doing good may not necessarily lead to doing well and that doing well may not naturally result in doing good. Thus, our study implies that future studies should seriously consider the causal mechanisms through which CSP may influence or may be influenced by CFP. Our paper also discusses the implications for CSP research and for management and organization research. The limitations of applying DPD estimation to empirically examine the causal relationship between CSP and CFP are also discussed. (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)

This study investigates whether financial performance is affected by corporate violations of laws and regulations. In a sample of 128 publicly traded banks that were subject to enforcement actions by US regulatory authorities over a 20-year period, we observed a significant negative market reaction pursuant to the violations. However, the market reaction did not vary meaningfully in accordance with the severity or repetitiveness of the violation. The results of this study are in conformity with previous research on industries other than (...) banking, notably with regard to negative market reaction. This confirms that shareholders in the banking industry react in a manner considerably similar to their counterparts in other industries. (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)

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)

The corporate financial performance (CFP)–corporate social performance (CSP) relationship has been investigated many times over the past few decades, yet the notion of CSP has generally been understood to be a single, monolithic aspect of corporate strategy. This article examines the common CFP–CSP understanding in three distinct ways: (1) by extending the evaluation of CSP as a complex, multistakeholder notion; (2) by analyzing CSP's relationship with the firm's financial performance at a given point in time as a lead (independent) variable (...) in the relationship and as a lag (dependent) variable in the relationship; and (3) for both positive and negative stakeholder relationships. The results indicate that the employee emerges as the stakeholder group most strongly linked to CFP, followed by the consumer stakeholder. The natural environment and the community stakeholder group are minimally associated with CFP. General support is found for a CFP–CSP relationship at a given point in time, with some support found for CSP as a lead (independent) variable. When used as a measure of financial performance, return on assets is more often correlated with CSP than is return on equity. These results and their implications are discussed. (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)

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)

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)

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)

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)

This paper analyses empirical evidence of efforts to enable Spanish micro and small manufacturing companies to boost their labour productivity rates through the development of the main pillars of their corporate social responsibility policies. This study aims to develop new approaches and sensibilities towards work from an ethical, values and CSR perspective, showing how internal dimensions of CSR, such those related to relationships with employees and responsibility in processes and product quality, can improve labour performance and labour efficiency, thereby contributing (...) to a better society. The results of a sample of 929 small businesses indicate that the social responsibility policies that most contributed to a short-term increase in labour productivity are those related to internal aspects of the company, in particular its involvement in the quality of processes and products, promotion of innovation and employee care. However, the impact on labour productivity of CSR policies related to external factors, such as relationship with stakeholders and environmental concern, could not be empirically proven in this paper. (shrink)

This paper examines the effect of corporate social responsibility on the number of bond covenants. We find that a high CSR score has a negative association with the number of bond covenants. Moreover, our results are more pronounced for firms with a high bid-ask spread and high agency costs. Our analysis highlights the effect of the good stakeholder relationship on the bond contracts.

We examine the role of managers in controlling the positive impact of stakeholder management (SM) on firm financial performance (FP) in the long term. We develop and test competing hypotheses on whether managers act as “good citizens” or engage in “self‐dealing” when allowed greater discretion. We test our assertions using dynamic panel data analysis of a sample of 806 U.S. public firms operating in 34 industries over 5 years (2005–2009). Our results indicate a nuanced influence of managerial discretion contexts on (...) the SM‐FP relationship. We infer that given more latitude in decision making, as long as the “going is good” managers act as good citizens, but otherwise they revert to managerial self‐dealing. In light of our results, firms designing governance mechanisms to encourage managers to balance the needs of both shareholders and stakeholders must remain cognizant of contextual contingencies. (shrink)

In highly structured organisational fields individual efforts to deal rationally with uncertainty and constraints tend to lead, in the aggregate, to greater homogeneity in structure, culture and output. Drawing on institutional theory, this paper develops research propositions regarding the nature and scope of corporate social responsibility (CSR) engagement at trade/industry association level. The cases of the water and sewerage and film industries are used in order to test these propositions. The findings suggest that (a) trade associations in more homogeneous industries (...) are more likely to engage with CSR‐related issues; (b) trade associations in industries that face greater external scrutiny and threats to legitimacy are more likely to engage with CSR‐related issues; and (c) trade associations are more likely to engage with those substantive CSR issues that are of greater concern to the industry's most salient stakeholders. The findings also suggest that trade associations may have a greater tendency to engage in symbolic legitimation efforts through CSR if faced with the task of repairing industry legitimacy. (shrink)

In highly structured organisational fields individual efforts to deal rationally with uncertainty and constraints tend to lead, in the aggregate, to greater homogeneity in structure, culture and output. Drawing on institutional theory, this paper develops research propositions regarding the nature and scope of corporate social responsibility (CSR) engagement at trade/industry association level. The cases of the water and sewerage and film industries are used in order to test these propositions. The findings suggest that (a) trade associations in more homogeneous industries (...) are more likely to engage with CSR‐related issues; (b) trade associations in industries that face greater external scrutiny and threats to legitimacy are more likely to engage with CSR‐related issues; and (c) trade associations are more likely to engage with those substantive CSR issues that are of greater concern to the industry's most salient stakeholders. The findings also suggest that trade associations may have a greater tendency to engage in symbolic legitimation efforts through CSR if faced with the task of repairing industry legitimacy. (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)

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)

We compare the traits of companies receiving social policy shareholder resolutions with those of a set of matching firms. We show that targeted firms tend to be much larger and riskier, less profitable and less socially performing than their counterparts. The five largest investors in firms receiving social proxies tend to hold a lower stake in those firms vis‐à‐vis the matching firms. Firms in both samples, however, are not statistically different in terms of percentages of shares held by institutional and (...) insider investors. We provide possible explanations for our results. (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)

We explore the relationship between corporate sustainability, reputation, and firm value by asking whether signaling sustainability leadership through membership on a recognized sustainability index is value generating. Increasingly, stakeholders are demanding that firms demonstrate their commitment to sustainability. One signal that companies can send to stakeholders to indicate that they are sustainability leaders is membership on a recognized “best in class” sustainability index. This article explores both the short-term and the intermediary impact on North American firms of being included or (...) removed from the Dow Jones Sustainability World Index (DJSI). Our results provide evidence that being added to the DJSI results in a sustained increase in a firm’s share price, suggesting that the benefits of being included on the DJSI outweigh the costs associated with applying. This article also notes a temporary decrease in the value of firms for the first 10 days after their removal from the DJSI; however, this effect is eliminated within the next ten trading days. (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)

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)

For four decades, research on the role and responsibilities of business in society has centered on the business case for corporate social responsibility (CSR) and an increasing number of studies on the corporate social performance (CSP)—corporate financial performance (CFP) link emerged leading to controversial results. Heeding the call for a deeper understanding of the mechanisms linking certain CSR efforts to certain performance outcomes, this study provides a stakeholder-based organizing framework rooted in an extensive review of existing literature on the link (...) between CSP and CFP. In so doing, we aim at guiding research and practice toward less simplistic understandings of the CSP–CFP connection, thus advancing the debate over the consequences of voluntary integrating CSR into business operations and into relationships with stakeholders. By disentangling specific drivers and outcomes of the CSP–CFP link, we underline the importance of setting clear boundaries and specifying levels of analysis to generate comparable results. (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)

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 question of what drives corporate social performance has become a vital concern for many managers and researchers of large corporations. This study addresses this question by adopting a multilevel, multistakeholder, and multimethod approach to theorize and estimate the relative influence of macro, meso, and micro factors on CSP. Applying three different methods of variance decomposition analysis to an international sample of 2060 large public companies over a time span of 5 years, our results show that firm-level factors explain the (...) largest proportion of variance in aggregate CSP as well as CSP oriented toward communities, the natural environment, and employees. These results support our hypotheses according to which CSP is not primarily driven by macrolevel or mesolevel factors, except for shareholder-oriented CSP, which is relatively more influenced by country-level factors. As a whole, our findings also point to the value of subdividing CSP into its stakeholder-specific components as this disaggregation allows for a more careful examination of distinct drivers of distinct aspects of CSP. (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 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)

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)

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)

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)

Firms engage in social responsibility activities for diverse reasons. This study focuses on understanding firms' instrumental motivations for engaging in socially responsible activities. We suggest that the instrumental motivations underlying firms' corporate social responsibility engagement are associated with their market, learning, and risk-related behaviors; thus, we identify market orientation, learning orientation, and risk-taking attitudes as three constructs that influence firms' CSR engagement. This research was conducted in the Norwegian firewood sector, in which CSR expectations are high and in which we (...) expect CSR engagement to be encouraged by both instrumental and normative motivations. The firms in this study are micro-firms with fewer than 10 employees and represent an important but highly neglected segment of firms in CSR research. Data obtained from 230 firms were analyzed using structural equation modeling. Our results indicate that market orientation, learning orientation, and risk-taking attitudes affect social responsibility toward different stakeholder groups in different ways. In some cases, the size and age of firms also affect these relationships. (shrink)

Business Ethics: A European Review, Volume 30, Issue 2, Page 216-230, April 2021.

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 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)

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)

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)

Interest in corporate citizenship has been burgeoning in the academic and managerial realms for decades. While a psychological CC climate has been conceptualized and has received empirical support for its relationship with employee outcomes, the organizational climate perspective of CC has not yet been explored. In the present study, we develop and examine a mediated moderation model that elaborates the underlying psychological process and the contingency of organizational CC climate and its individual outcomes. We follow 539 employees in 26 firms (...) for approximately one year in Taiwan. We find that organizational CC climate is positively related to employees’ organizational identification and that the firm’s high-commitment work system can augment the effect of CC on employees’ OI. In addition, employees’ OI plays a psychological process role in mediating the interactive effect of the firm’s CC and HCWS on employees’ workplace outcomes, including their job satisfaction and turnover intention. The findings shed light on the alignment of CC and human resource functions and argue that the Confucian Asian context may act as a stepping stone for the impact of CC on employees’ attitudes. The study offers valuable implications for both researchers and practitioners. (shrink)

Corporate community responsiveness relates to business activities that are integral parts of a firm’s operations and are designed to benefit the firm through benefiting the local communities. Using data from commercial banks in the United States between 1997 and 2000, the authors measured banks’ corporate community responsiveness by their Community Reinvestment Act (CRA) lending activities and their performance ratings by CRA examiners. The authors developed and tested eight hypotheses on the influence of contextual (community income, minority population, and competition) and (...) organizational (age, profitability, risk, institutional ownership, and mergers and acquisitions) factors on the two measures of corporate community responsiveness. The authors found a negative effect for minority population; a positive effect for banks’ profitability; and partial support for community income, competition, and risk factors. The results show no effects for institutional ownership or mergers and acquisitions. The implications of these results for the instrumental aspect of stakeholder theory are discussed. (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)

This paper investigates whether relative corporate sustainability as measured by the SAM sustainability ranking and sustainability reporting in terms of Global Reporting Initiative application levels are associated with a higher market valuation. We conduct a value relevance study for the 600 largest European companies with the Feltham and Ohlson valuation model as a reference point. Our results indicate that for the observation period 2001 to 2011, the association between corporate sustainability and market value is positive. The empirical evidence of a (...) positive relationship between GRI reporting and market value is statistically significant in some but not all of the model specifications. We find no evidence of interaction between the value relevance of corporate sustainability and sustainability reporting, nor do we find any positive effect of external assurance on the capital market perception of GRI application levels. Our results support the notion that conducting business in accordance with ethical norms is also a shareholder value-increasing business strategy. However, it is not possible to verify the information given in sustainability reports through external assurance. (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)

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 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 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 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)