Doing safe while doing good: Slack, risk management capabilities, and the reliability of value creation through CSR

Abstract

When can corporate social responsibility (CSR) become a reliable strategic asset? There is a scarcity of both theoretical arguments and empirical evidence investigating the trade-off between the risk and return of CSR. We intend to fill this gap by (1) investigating CSR’s simultaneous impact on firm value and the reliability of this impact, and (2) exploring the conditions under which CSR’s impact on firm value becomes more or less reliable. The presented findings suggest that CSR by itself is an unreliable value enhancer, in that it increases firm value but also increases the variance of expected value distribution. Yet, the impact of CSR on firm value becomes more reliable when a firm has immediately redeployable slack or when a firm has stronger risk management capabilities. This research provides practical implications to managers and investors regarding the riskiness of CSR investments and strategies for mitigating such risks.

Can corporate social responsibility protect firm value during corporate environmental violation events?

“…First, we empirically test the insurance effect of CSR on shareholder value in the context of environmental violations. CSR has been treated as a non‐market strategy that helps firms build moral capital and enhance performance (e.g., Godfrey et al, 2009; Lu et al, 2022). Our findings show that CSR can create value for shareholders in the face of environmental violations.…”

“…The increasing importance of corporate social responsibility (CSR) among practitioners is receiving considerable attention in the strategy literature (Lu et al, 2022; McWilliams et al, 2006; Shiu & Yang, 2017). A growing number of studies argue that firms can do well by doing good; that is, CSR enables a firm to achieve superior financial performance (Flammer, 2013; Lenz et al, 2017; Lu et al, 2022; Servaes & Tamayo, 2013). Thus, when firms set out to formulate their corporate strategies, CSR activities should be routinely included (McWilliams & Siegel, 2001).…”

Socioemotional wealth of family firms during the COVID-19 pandemic: the role of slack resources

“…CSR activities represent one of the most important means of addressing the problems caused by COVID-19 (Zhang et al, 2021). Previous studies have identified that slack resources are allocated to CSR activities and companies with more slack resources are more inclined to conduct CSR (Shahzad et al, 2016;Zhang et al, 2020;Lu et al, 2022). It is therefore expected that an exploration of the role of slack resources in the pandemic context will yield insightful findings.…”

Themed issue: Political strategy in and by organizations

“…Following this idea of boundary conditions, the paper by Lu and colleagues (2023) studies the interaction between firms’ corporate social responsibility (CSR) activity and their evaluation by the market. Of course, this is well-traveled ground, with voluminous research and a number of reviews and meta-analyses; yet, the overall takeaway from these many papers is that the relationship between “doing well” and “doing good” is complex and uncertain (see, for example, Berchicci and King, 2022).…”