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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).
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.
Tobin’s Q depicts the market’s valuation of a company compared to its assets-in-place (Smith and Watts 1992).
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.
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).
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.
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).
Indicators for our latent variables are shown in Fig. 1.
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.
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).
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.
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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).
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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
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DOI: https://doi.org/10.1007/s10551-013-1707-1