Firms’ corporate social responsibility behavior: An integration of institutional and profit maximization approaches

Abstract

Understanding firms' behavior across countries -a key concern in the international business literature -requires the joint consideration of both institutional influences and firms' profit maximization goals. In the corporate social responsibility (CSR) area, however, researchers have utilized theories that take into account only one or the other -institutional theory, which explains CSR as legitimacyseeking activities in line with national-level institutions, or economic-based approaches that consider CSR effects only in terms of firm profitability. While an institutional argument implies convergence in CSR behavior among firms in similar institutional contexts, profit maximization logic treats CSR as a firm-specific behavior. We integrate these perspectives by demonstrating the moderating effects of firms' economic motivations for seeking legitimacy on the relationship between institutional environment and CSR responsiveness. We argue that variations in firms' economic visibility and economic vulnerability can bring about differences in their need for societal goodwill, and in turn, their legitimacy seeking. Findings on a database of apparel firms' employee-related CSR across 23 countries support this overall argument. The integration of such fundamentally different theoretical perspectives allows us to contribute new theoretical insights to international business on the influence of national institutions on firms' behavior.

Seeking legitimacy: Chinese OFDI and domestic isomorphic pressures

“…Large firms tend to receive more publicity and have greater name recognition (Suchman, 1995). To maintain this favorable status, they are more likely to care about how they are perceived by market stakeholders (Young and Makhija, 2014). The adoption of expected behavior is the best way for large firms to preserve the endorsement of market stakeholders.…”

“…Moreover, if large firms fail to fulfill the expectations of market stakeholders, they are subject to more commercially adverse reactions from the market, including loss of reputation (Brammer and Pavelin, 2004). Therefore, large firms are expected to be more fearful of losing legitimacy from market stakeholders than small firms (Young and Makhija, 2014).…”

“…State ownership signals the level of resource and legitimacy dependence on governments (Pan et al, 2014), whereas firm size reflects the level of the expectations of market stakeholders for the strategic actions of the firm (Young and Makhija, 2014). Firms with substantial state ownership are expected to be more concerned with seeking legitimacy from the regional government.…”

“…Based on this institutional rationale, several studies examine the role of external isomorphic pressure in the strategic choices of 2 firms in foreign direct investment (FDI) (Davis et al, 2000;Yiu and Makino, 2002;Yang, 2009; Li and Parboteeah, 2015). Although these studies find that firms tend to conform to external isomorphic pressure by adopting similar FDI strategies, they have not fully accounted for the fact that the isomorphic behaviors of firms within a given institutional context are also heterogeneous and vary with firm-specific characteristics such as ownership features and firm size (Huang and Chi, 2014;Young and Makhija, 2014). Indeed, these firm attributes can also lead to differences in legitimacy-seeking motivation, subsequently causing variations in the influence of isomorphic pressures on the internationalization strategy or behavior of these firms.…”

“…Moreover, if large firms fail to fulfill the expectations of market stakeholders, they are subject to more commercially adverse reactions from the market, including loss of reputation (Brammer and Pavelin, 2004). Therefore, large firms are expected to be more fearful of losing legitimacy from market stakeholders than small firms (Young and Makhija, 2014).We endeavor to make two main contributions in our study. First, it advances institutional logics in international business (IB) research by highlighting the role of 4 legitimacy-seeking motivations in shaping the isomorphic behavior of OFDI.…”