Corporate social responsibility and inventory policy

Abstract

In this article, we study the impact of implementing corporate social responsible (CSR) practices on a firm's inventory policy. Our proposal is that there is an inverted U-shape relationship between firms' CSR and their inventory levels. Two elements explain such proposal. First, stakeholders have different interests regarding the outcome of the inventory system. Specifically, we hypothesize that customers pressure firms to increase inventories; employees have conflicting views regarding inventories and, for this reason, they do not pressure firms in a particular direction; and environmental activists force firms to reduce inventories. The second reason is that there is different level of stakeholder proactiveness contingent on the intensity in the implementation of social responsible policies. In particular, we posit that for low levels of CSR, customers are more relevant, while for larger levels other stakeholders gain more importance.We test this theoretical prediction by crossing two databases, COMPUSTAT, for financial data, and KLD for data on social responsibility. Our final database contains data on 1881 different US companies for the period 1996-2006. The results found conform to our theoretical prediction.Our analysis will be helpful to strategic and tactical decision-making processes on inventory management and will allow researchers to offer concrete advice on the likely outcomes of various stakeholder relationship practices in order to improve the effectiveness of inventory systems. Additionally, the connection between CSR and inventory policies has interest at a macroeconomic level given that, on the one hand, there is a growing tendency for firms to behave in a socially responsible way. On the other, inventories are responsible for up to 87% of the total peak-to-trough movement in GDP. Thus, our results suggest that this tendency to incorporate the social dimension in firms' strategy should smooth out the overall economic cycle given that firms apply more intensive CSR policies in the expansive periods (decreasing inventories) rather than during the downturns (increasing inventories).

CSR related management practices and firm performance: An empirical analysis of the quantity–quality trade-off on French data

“…In turn, and drawing on previous research (e.g. Waddock and Graves, 1997;Cavaco and Crifo, 2013;Barcos et al, 2013), we define CSR relying on three main categories: environmental performance, human resource related practices, and relationships with customers & suppliers.…”

“…Brammer and Pavelin, 2006;Barcos et al, 2013). Therefore, it is likely that the impact of CSR on firm performance is contingent upon which dimension of social responsiveness is taken into consideration.…”

“…Surroca, Tribò and Waddock, 2010). In this sense, Mackey, Mackey and Barney (2007), Brammer and Milligton (2008) and Barcos et al (2013) suggest that some forms of socially responsible behavior are positively associated with firm performance while other are not. Barnett and Solomon (2006) show that CSR investments vary by the intensity of a firm's social screening and also in the types of social screens that a firm employs.…”

“…Barnett and Solomon (2006) show that CSR investments vary by the intensity of a firm's social screening and also in the types of social screens that a firm employs. Hence, there is a need to break down the CSR among the different dimensions in order to study its possible differential impact on a firm performance (Barcos et al, 2013). Moreover, how those various dimensions interact as inputs of firm performance is important.…”

“…The limitation of our variables is that we do not cover CSR management practices related to human rights, community involvement or corporate governance. In this sense, our research is more focused on stakeholder oriented CSR practices, notably towards employees, or customers and suppliers (Barcos et al, 2013. Yet, our database relies on a representative sample of more than 10,000 French firms, whereas extra-financial agencies cover only several hundred (multinational) firms.…”