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The Impact of Social Norms of Responsibility on Corporate Social Responsibility Short Title: The Impact of Social Norms of Responsibility on Corporate Social Responsibility

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Abstract

Social norms of responsibility are shared beliefs on what constitutes responsible behavior, and they play a significant role in determining CSR. This study analyzes how social norms of responsibility permeate corporate boundaries and influence CSR through political leaders, corporate executives, employees, and the public. Socially irresponsible behaviors of the above populations are used as proxies for local social responsibility norms and related to CSR ratings for firms headquartered in the twenty largest U.S. metro areas. The empirical results show that firms headquartered in cities with more responsible social norms exhibit higher ESG scores even after controlling for various demographic, regional, and economic factors. Social responsibility norms encourage firms to be more responsible but are ineffective in deterring irresponsible corporate behaviors. Corporate and political leaders are the essential channels through which social norms of responsibility influence CSR, highlighting the importance of instituting regulations and setting high ethical standards for political and business leaders. This study also demonstrates that social norms have a significant impact on firms with leaders who are more susceptible to local social norms (i.e., local leaders) than non-local leaders. In addition, this study documents a negative bias for responsible social norms in that they condemn irresponsible behaviors more than reward responsible ones. Collectively, the above findings underline the importance of social norms of responsibility in shaping CSR and provide additional insights into societal motivations for CSR.

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Data availability

Most of the data in this study is not freely available as they are obtained from dataproviders. Some data are obtained from other papers and researchers. The sources of the data are given in the paper.

Notes

  1. Research on the economic motivation of CSR reports conflicting results regarding the financial benefits of CSR. For example, some studies have demonstrated that better CSR ratings are associated with higher returns and productivity, lower risk, cost of equity, and debt, and increased product differentiation (Albuquerque et al., 2018; Flammer 2015; Kim et al., 2014). Other studies argue that managers engage in CSR projects for personal benefits at shareholders’ expense as they report a negative market reaction toward positive CSR news, and lower market value and institutional holdings for responsible firms (Fernando et al., 2017; Krüger, 2015).

  2. Medical sensitivity measures how likely it is for doctors to prescribe drugs from a pharmaceutical firm after they receive monetary payments from the pharmaceutical firm.

  3. Religious norms are rules that define the behaviors and habits of practitioners of a theological doctrine, such as dealing with God and faith (Chintrakarn et al., 2017; Leon et al., 2021). Social capital captures people's social “connectedness” in a community and its norms foster connections and cooperation among people (Coleman 1988; Guiso et al., 2011; Hoi et al., 2018). These norms could also impact an individual’s perception of responsible behaviors through religious beliefs and social cooperation. However, people’s responsible behaviors are governed more directly and holistically by social responsibility norms.

  4. Conversely, one could argue that socially responsible corporate behavior might be more valuable in low social norm regions where most firms did not behave responsibly; hence, good behavior is likely to be highlighted more when most firms misbehave.

  5. In this study, MSA is used interchangeably with city, metro, or area.

  6. One exception is Orlando; the DOJ for central Florida is not headquartered in Orlando. Therefore, Orlando has no political corruption data.

  7. I also replace financial advisor fraud with the financial crime rate from Parson et al. (2018). The results using the financial crime rate are very similar to those using financial advisor fraud.

  8. The index explains roughly 50% of the total variations in the five misbehaviors.

  9. Political affiliation is also considered, and results remain unchanged, largely due to the fact that almost all metro cities are predominately democratic.

  10. I also run a pooled regression without clustering errors at the firm level and the results are stronger than those of the regressions with clustered errors. Additional regressions clustering errors at the metro/industry level show very similar results to those reported in Table 3.

  11. Figure 2 only visualizes the relation between ESG/environmental ratings and irresponsibility index as plots for the relationship between social/governance and irresponsibility index for local executives vs. non-local executives are not visually apparent, thus not presented.

  12. The positive relation between firm value and overall concerns is due to the positive relation between the overall strengths and overall concern. Some firms have more concerns and strengths while others have fewer concerns and strengths.

  13. This is based on COMPUSTAT historical segments data. Geographically concentrated firms have fewer than four segments, whereas geographically spread-out firms have more than four segments.

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Acknowledgements

I thank Andréanne Tremblay-Simard, Yik Au, Chenguang Tang, James LeSage, Janet Payne, the editor and anonymous reviewers from Journal of Business Ethics, conference participants from Southern Management Academy conference, Eastern Finance conference, and Southern Finance conference for helpful comments. I thank Scott Yonker for his generous supply of data.

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  1. Department of Finance and Economics, Texas State University, 601 University Dr. San Marcos, San Marcos, TX, 78666, USA

    Leyuan You

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You, L. The Impact of Social Norms of Responsibility on Corporate Social Responsibility Short Title: The Impact of Social Norms of Responsibility on Corporate Social Responsibility. J Bus Ethics 190, 309–326 (2024). https://doi.org/10.1007/s10551-023-05417-w

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