Skip to main content

Advertisement

SpringerLink
Log in

Do Investors Value a Firm’s Commitment to Social Activities?

  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4

Similar content being viewed by others

Notes

  1. See the special issue on “Corporate Social Responsibility: Strategic Implications” in Journal of Management Studies (volume 43, issue 1, January 2006) and the special topic forum on “Corporations as Social Change Agents” in Academy of Management Review (volume 32, issue 3, July 2007). Also, see previous special research forum on “Stakeholders, Social Responsibility, and Performance” in Academy of Management Journal (volume 42, issue 5, October 1999).

  2. Moreover, McWilliams et al. (2006), McWilliams and Siegel (2000), and Barnett (2007) argue that the lack of consistency in previous findings may be a consequence of poor definition of the financial performance and CSR constructs, imprecision in research design, model specification biases and deficient analysis of the results.

  3. Tobin’s Q depicts the market’s valuation of a company compared to its assets-in-place (Smith and Watts 1992).

  4. The only exception is the community dimension of CSR. The interaction between the community dimension and the investment in innovation has a positive effect on Tobin’s Q.

  5. For example, the firm has an implicit contract with its customers on the quality of products and services. Customers have an implicit claim on the firm when the product does not meet quality standard (e.g., product recalls for safety concern).

  6. Peloza (2006) also suggests that corporate social activities, in terms of firm reputation, may play an important role in mitigating the potential consequences of future damaging events.

  7. For example, Ford Motor was selected Latina Style magazine’s 2004 Fifty Best Companies based on, among other criteria, its mentoring program and its relationship with the Hispanic community. This publicity can help Ford to attract better prospective employees (Greening and Turban 2000; Turban and Greening 1997), increase customer-company identification (Sen and Bhattacharya 2001) and affect customers’ product attitude (Berens et al. 2005).

  8. Both McWilliams and Siegel (2000) and Hull and Rothenberg (2008) based their conclusion on a single accounting-based measure: profitability (proxied by return on assets ratio).

  9. Indicators for our latent variables are shown in Fig. 1.

  10. Numerous accounting studies have used Zmijewski score for the recognition of financial distressed firms (e.g., Pava and Krausz, 1996; Ruiz-Barbadillo et al., 2004; Johnstone and Bedard, 2004; Carcello and Nagy, 2004). Since we are interested in the effect of CSR on a firm’s performance, we use the negative of Zmijewski score as a proxy for the firm’s financial health. We have also repeated our analyses using the inverse of Zmijewski score as a proxy and the tenor of the results does not change.

  11. Once again in model 3, firms with a better financial health had higher profitability (β 1 = .351, p < .01), higher liquidity (β 2 = .118, p < .01), and less leverage (β 3 = -.799, p < .01). Also, the KLD measures latent variable explained most of the variance of the CSR construct (β 5 = .920, p < .01; R 2 = .847).

  12. While McWilliams and Siegel (2000) reported a correlation between CSR and innovation of 0.499 (p < 0.01) over the period of 1991–1996, Hull and Rothenberg (2008) found a correlation of −0.166 (p < 0.05) over the period of 1998–2001.

  13. In their study, Barnett and Salomon (2006) employed risk-adjusted financial performance as the dependent variable, measured as the monthly percentage change in a fund’s market value adjusted by the fund’s specific beta.

  14. This argument is consistent with Paul and Siegel (2006) and Vitaliano and Stella (2006) suggesting that CSR seems to be a management choice based on balancing marginal cost and marginal revenue.

References

  • Amir, E., & Lev, B. (1996). Value-relevance of nonfinancial information: The wireless communications industry. Journal of Accounting and Economics, 22, 3–30.

    Article  Google Scholar 

  • Aupperle, K., Carroll, A., & Hatfield, J. (1985). An empirical examination of the relationship between corporate social responsibility and profitability. Academy of Management Journal, 28, 446–463.

    Article  Google Scholar 

  • Ballou, B., Godwin, N. H., & Shortridge, R. B. (2003). Firm value and employee attitudes on workplace quality. Accounting Horizons, 17, 329–341.

    Article  Google Scholar 

  • Barnett, M. L. (2007). Stakeholder influence capacity and the variability of financial returns to corporate social responsibility. Academy of Management Review, 32, 1–50.

    Article  Google Scholar 

  • Barnett, M. L., & Salomon, R. M. (2006). Beyond dichotomy: The curvilinear relationship between social responsibility and financial performance. Strategic Management Journal, 27, 1101–1122.

    Article  Google Scholar 

  • Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99–120.

    Article  Google Scholar 

  • Berens, G., Van Riel, C. B., & Van Bruggen, M. (2005). Corporate associations and consumer product responses: The moderating role of corporate brand dominance. Journal of Marketing, 69, 35–48.

    Article  Google Scholar 

  • Blanco, B., Guillamon-Saorin, E., & Guiral, A. (2012). Do non-socially responsible companies achieve legitimacy through socially responsible actions? The mediating effect of innovation. Journal of Business Ethics. doi:10.1007/s10551-012-1503-3.

  • Carcello, J. V., & Nagy, A. L. (2004). Audit firm tenure and fraudulent financial reporting. Auditing: A Journal of Practice & Theory, 23, 57–71.

    Article  Google Scholar 

  • Chin, W. W. (1998). Issues and opinion on structural equation modeling. MIS Quarterly, 22, 7–16.

    Google Scholar 

  • Chin, W. W., Marcolin, B. L., & Newsted, P. R. (2003). A partial least squares latent variable modeling approach for measuring interaction effects: Results from a Monte Carlo simulation study and an electronic mail emotion/adoption study. Information Systems Research, 14, 189–217.

    Article  Google Scholar 

  • Collins, C. J., & Smith, K. G. (2006). Knowledge exchange and combination: The role of human resource practices in the performance of high-technology firms. Academy of Management Journal, 49, 544–560.

    Article  Google Scholar 

  • Cornell, B., & Shapiro, A. (1987). Corporate social responsibility and financial performance. Academy of Management Review, 4, 497–505.

    Google Scholar 

  • Davis, K. (1973). The case for and against business assumptions of social responsibilities. Academy of Management Journal, 16, 312–317.

    Article  Google Scholar 

  • Demers, E., & Lev, B. (2001). A rude awakening: Internet shakeout in 2000. Review of Accounting Studies, 6, 331–359.

    Article  Google Scholar 

  • Ernst & Young. (2009). Beyond Borders: The global biotechnology report. http://www.ey.com/CH/en/Newsroom/News-releases/20090505-Beyond-Borders-Ernst-Young-Global-Biotechnology-Report-2009-Global-financial-crisis-profoundly-strains-biotechnology-business-model.

  • Falk, R. F. (1987). A primer for soft modeling. Berkeley: University of California Institute of Human Development.

    Google Scholar 

  • FASB. (1980). Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information. Financial Accounting Standard Board. http://www.fasb.org/pdf/aop_CON2.pdf.

  • Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research, 18, 39–50.

    Article  Google Scholar 

  • Foss, K., & Rodgers, W. (2011). Enhancing information usefulness by line managers’ involvement in cross-unit activities. Organization Studies, 32, 683–703.

    Article  Google Scholar 

  • Freeman, R. E. (1984). Strategic management: A stakeholder approach. Marshfield, MA: Pitman.

    Google Scholar 

  • Garcia-Castro, R., Ariño, M. A., & Canela, M. A. (2010). Does social performance really lead to financial performance? Accounting for endogeneity. Journal of Business Ethics, 921, 107–126.

    Article  Google Scholar 

  • Greening, D. W., & Turban, D. B. (2000). Corporate social performance as a competitive advantage in attracting a quality workforce. Business and Society, 39, 254–280.

    Article  Google Scholar 

  • Griffin, J. J., & Mahon, J. F. (1997). The corporate social performance and corporate financial performance debate: Twenty-five years of incomparable research. Business and Society, 36, 5–31.

    Article  Google Scholar 

  • Guiral, A. (2012). Corporate social performance, innovation intensity and financial performance: Evidence from lending decisions. Behavioral Research in Accounting, 24(2), 65–85.

    Article  Google Scholar 

  • Harrison, J. S., & Freeman, R. E. (1999). Stakeholders, social responsibility, and performance: Empirical evidence and theoretical perspectives. Academy of Management Journal, 42, 479–485.

    Article  Google Scholar 

  • Hein, S. (1981). Employees and the corporate social report: The Dutch case. The Accounting Review, 56, 294–308.

    Google Scholar 

  • Hull, C. E., & Rothenberg, S. (2008). Firm performance: The interactions of corporate social performance with innovation and industry differentiation. Strategic Management Journal, 29, 781–789.

    Article  Google Scholar 

  • Johnstone, K. M., & Bedard, J. C. (2004). Audit firm portfolio management decisions. Journal of Accounting Research, 424, 659–690.

    Article  Google Scholar 

  • Jones, T. M. (1995). Instrumental stakeholder theory: A synthesis of ethics and economics. Academy of Management Review, 20, 404–437.

    Google Scholar 

  • Kaplan, S., & Zingales, L. (1997). Do investment-cash flow sensitivities provide useful measures of financing constraints? Quarterly Journal of Economics, 112, 169–215.

    Article  Google Scholar 

  • Lev, B., & Sarowin, P. (1999). The boundaries of financial reporting and how to extend them. Journal of Accounting Research, 372, 353–385.

    Article  Google Scholar 

  • Lichtenberg, F., & Siegel, D. (1991). The impact of R&D investment on productivity: New evidence using linked R&D-LRD data. Economic Inquiry, 29, 203–228.

    Article  Google Scholar 

  • Luo, X., & Bhattacharya, C. B. (2006). Corporate social responsibility, customer satisfaction, and market value. Journal of Marketing, 70, 1–18.

    Article  Google Scholar 

  • Maiga, A. S., & Jacobs, F. A. (2005). Antecedents and consequences of quality performance. Behavioral Research in Accounting, 17, 111–131.

    Article  Google Scholar 

  • Margolis, J. D., & Walsh, J. P. (2001). People and profits? The search for a link between a company’s social and financial performance. Mahwah, NJ: Lawrence Erlbaum Associates.

    Google Scholar 

  • Margolis, J. D., & Walsh, J. P. (2003). Misery loves companies: Rethinking social initiatives by business. Administrative Science Quarterly, 48, 655–689.

    Article  Google Scholar 

  • McGuire, J. B., Sundgren, A., & Schneeweis, T. (1988). Corporate social responsibility and firm financial performance. Academy of Management Journal, 31, 854–872.

    Article  Google Scholar 

  • McWilliams, A., & Siegel, D. (2000). Corporate social responsibility and financial performance: Correlation or misspecification? Strategic Management Journal, 21, 603–609.

    Article  Google Scholar 

  • McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26, 117–127.

    Google Scholar 

  • McWilliams, A., Siegel, D., & Wright, P. M. (2006). Guest editors’ introduction. Corporate social responsibility: Strategic implications. Journal of Management Studies, 43, 1–18.

    Article  Google Scholar 

  • Nunnally, J. C. (1978). Psychometric theory. New York: McGraw Hill.

    Google Scholar 

  • Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization Studies, 24, 403–441.

    Article  Google Scholar 

  • Paul, C. M., & Siegel, D. (2006). Corporate social responsibility and economic performance. Journal of Productivity Analysis, 263, 207–211.

    Article  Google Scholar 

  • Pava, M. L., & Krausz, J. (1996). The association between corporate social-responsibility and financial performance: The paradox of social cost. Journal of Business Ethics, 15, 321–357.

    Article  Google Scholar 

  • Peloza, J. (2006). Using corporate social responsibility as insurance for financial performance. California Management Review, 48, 52–72.

    Article  Google Scholar 

  • Peloza, J. (2009). The challenge of measuring financial impacts from investments in corporate social performance. Journal of Management, 356, 1518–1541.

    Article  Google Scholar 

  • Preston, L. E., & O’Bannon, D. P. (1997). The corporate social–financial performance relationship: A typology and analysis. Business and Society, 36, 419–429.

    Article  Google Scholar 

  • Prior, D., Surroca, J., & Tribo, J. A. (2008). Are socially responsible managers really ethical? Exploring the relationship between earnings management and corporate social responsibility. Corporate Governance, 16, 160–177.

    Article  Google Scholar 

  • Reichheld, F. (2003). The one number you need to grow. Harvard Business Review, 81, 46–54.

    Google Scholar 

  • Rodgers, W. (1997). Throughput modeling: Financial information used by decision makers. Greenwich, CT: JAI Press.

    Google Scholar 

  • Roman, R. M., Hayibor, S., & Alge, B. R. (1999). The relationship between social and financial performance: Repainting a portrait. Business and Society, 38, 109–125.

    Article  Google Scholar 

  • Ruf, B. M., Muralidhar, K., Brown, R. M., Janney, J. J., & Paul, K. (2001). An empirical investigation of the relationship between change in corporate social performance and financial performance: A stakeholder theory perspective. Journal of Business Ethics, 32, 143–156.

    Article  Google Scholar 

  • Ruiz-Barbadillo, E., Gómez-Aguilar, N., Fuentes-Barberá, C., & Garcí-Benau, M. A. (2004). Audit quality and the going-concern decision-making process: Spanish evidence. European Accounting Review, 134, 597–620.

    Article  Google Scholar 

  • Russo, M. V., & Fouts, P. A. (1997). A resource-based perspective on corporate environmental performance and profitability. Academy of Management Journal, 20, 534–559.

    Article  Google Scholar 

  • Schuler, D. A., & Cording, M. (2006). A corporate social performance-corporate financial performance behavioral model for consumers. Academy of Management Review, 3, 540–558.

    Article  Google Scholar 

  • Sen, S., & Bhattacharya, C. B. (2001). Does doing good always lead to doing better? Consumer reactions to corporate social responsibility. Journal of Marketing Research, 38, 225–243.

    Article  Google Scholar 

  • Sen, S., Bhattacharya, C. B., & Korschun, D. (2006). The role of corporate social responsibility in strengthening multiple stakeholder relationships: a field experiment. Journal of the Academy of Marketing Science, 34, 158–166.

    Article  Google Scholar 

  • Smith, C., & Watts, R. (1992). The investment opportunity set and corporate financing, dividend, and compensation policies. Journal of Financial Economics, 32, 263–292.

    Article  Google Scholar 

  • Sundaram, A. K., & Inkpen, A. C. (2004). The corporate objective revisited. Organization Science, 15, 350–363.

    Article  Google Scholar 

  • Surroca, J., Tribó, J. A., & Waddock, S. (2010). Corporate responsibility and financial performance: The role of intangible resources. Strategic Management Journal, 315, 463–490.

    Google Scholar 

  • Trueman, B., Wong, T. J., & Zhang, X. J. (2000). The eyeballs have it: Searching for the value in internet stocks. Journal of Accounting Research, 38, 137–162.

    Article  Google Scholar 

  • Turban, D. B., & Greening, D. W. (1997). Corporate social performance and organizational attractiveness to prospective employees. Academy of Management Journal, 40, 658–672.

    Article  Google Scholar 

  • Ullmann, A. (1985). Data in search of a theory: A critical examination of the relationships among social performance, social disclosure, and economic performance. Academy of Management Review, 10, 540–577.

    Google Scholar 

  • Vitaliano, D., & Stella, G. (2006). The cost of corporate social responsibility: The case of the community reinvestment act. Journal of Productivity Analysis, 263, 235–244.

    Article  Google Scholar 

  • Voss, R., & Gruber, T. (2005). Complaint handling at the Schindlerhof Hotel with praise and assessment cards. Management Services, 49, 16–19.

    Google Scholar 

  • Waddock, S. A., & Graves, S. B. (1997). The corporate social performance–financial performance link. Strategic Management Journal, 18, 303–319.

    Article  Google Scholar 

  • Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5, 171–180.

    Article  Google Scholar 

  • Williamson, O. E. (1985). The economic institutions of capitalism. New York: The Free Press.

    Google Scholar 

  • Wood, D. J., & Jones, R. E. (1995). Stakeholder mismatching: A theoretical problem in empirical research on corporate social performance. International Journal of Organizational Analysis, 3, 229–267.

    Article  Google Scholar 

  • Xu, B., Magnan, M. L., & Andre, P. E. (2007). The stock market valuation of R&D information in biotech firms. Contemporary Accounting Research, 244, 1291–1318.

    Article  Google Scholar 

  • Zmijewski, M. E. (1984). Methodological issues related to the estimation of financial distress prediction models. Journal of Accounting Research, 22(Supplement), 59–82.

    Article  Google Scholar 

Download references

Acknowledgments

We would like to thank Daniel Korschun, Anthony Curatola, Cristina Abad, Emiliano Ruiz, Jose A. Gonzalo and participants at the 14th Ethics Symposium, 31st Annual Congress of the European Accounting Association, 2009 Annual Meeting of the American Accounting Association, and the 3rd World Business-Ethics Forum for their helpful discussions and suggestions. We are also grateful to the judge panel of the Social and Environmental Accounting Section of the 31st Annual Congress of European Accounting Association for granting us the Best Paper Award, the 14th Ethics Symposium of 2009 American Accounting Association Annual Conference for the honorable mention, and for the Special Research Mention at the 2010 Spanish Accounting Professors Association Meeting. This study was supported by the National Research Foundation of Korea Grant funded by the Korean Government (NRF-2012-S1A3A2-2012S1A3A2033412). Andrés Guiral acknowledges financial contribution from the Spanish Ministry of Innovation and Science (research projects SEJ2004-00791ECON, SEJ2007-62215/ECON/FEDER, SEJ 2006-14021, ECO2010-17463 ECON-FEDER).

Author information

Authors and Affiliations

  1. University of Hull, Yorkshire, UK

    Waymond Rodgers

  2. Drexel University, Philadelphia, PA, USA

    Hiu Lam Choy

  3. Yonsei University School of Business, 50 Yonsei-ro, Seodaemun-gu, Seoul, 120-749, South Korea

    Andrés Guiral

  4. University of Texas, El Paso, TX, USA

    Waymond Rodgers

Authors
  1. Waymond Rodgers
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Hiu Lam Choy
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Andrés Guiral
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Waymond Rodgers.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Rodgers, W., Choy, H.L. & Guiral, A. Do Investors Value a Firm’s Commitment to Social Activities?. J Bus Ethics 114, 607–623 (2013). https://doi.org/10.1007/s10551-013-1707-1

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-013-1707-1

Keywords

Search

Navigation