How Do Strengths and Weaknesses in Corporate Social Performance Across Different Stakeholder Domains Affect Company Performance?

Abstract

The existing research on corporate social responsibility (CSR) has largely focused on the positive aspect of corporate social performance (CSP) and company performance (CP) and ignored the relationship between actions that would qualify as negative CSP (or weakness in CSP) towards a stakeholder group and company performance. Using data from the KLD collected over a three-year period, this study examines the relationship between both CSP weaknesses and strengths and CP across individual stakeholder domains. Results of the study suggest that strengths in CSP related to primary stakeholder domains is associated with superior company performance. However, this relationship is tenuous, at best, in case of secondary stakeholder domain. As for weaknesses in CSP, the results suggest that if a firm performs poorly in meeting the expectations of one or more stakeholders, it is penalized in the form of poor performance. This finding generally holds true for both primary and secondary stakeholders.Implications of these findings for public policy and businesses planning to address social issues are discussed.

Measuring corporate social responsibility: A critical review of survey instruments

“…In addition, ineffective or exceedingly opportunistic CSR policies create negative sentiments among stakeholder groups that could potentially harm or extensively damage a firm's legitimacy and social licence to operate in the community (Tang‐Lee, ). This is also evident in the study of Kumar, Boesso, and Michelon () which revealed that strengths in CSR related to primary stakeholder domains are associated with superior company performance. However, this relationship is tenuous, at best, in the case of the secondary stakeholder domain.…”

The Power of Stakeholders' Voice: The Effects of Social Media Activism on Stock Markets

“…As such, it complements prior studies on stakeholder salience, by focusing on the power to influence the company (Mitchell et al , ; Grafé‐Buckens and Hinton, ; Henriques and Sharma, ; González‐Benito and González‐Benito, ; Bolton and Landells, ) by showing that organized, collective and public stakeholder power can affect investors' decisions and thus corporate financial performance. We also contribute to the social and environmental accounting literature and stakeholder engagement stream (Unerman and Bennett, ; Onkila, ; Boesso et al , ; Dobele et al , ; Rodrigue, ; Amran et al , ; Rodrigue et al , ; Kumar et al , ) by considering a new form of engagement that may have the potential to affect firms' behavior via changing investors' decisions in the stock market. Finally, our research shows the impacts of SMe activism in the current socio‐economic context, with the growth of social movement protests in Southern Europe (Sampedro and Lobera, ), and the development of social networks as predominant communication channels, which have remarkably enhanced and transformed social movements (Anduiza et al , ).…”

The Impact of Indirect Corporate Social Performance Signals on Firm Value: Evidence from an Event Study

“…We also found that positive indirect signals related to the employee and customer dimensions of CSP had stronger effects on firm value than positive indirect signals related to other CSP dimensions, and that, over time, indirect signals related to diversity have had a more positive impact on firm value. These results are largely in line with recent prior studies that have examined the effect of direct CSP signals related to the seven aforementioned CSP dimensions on firm performance (Kumar et al ., ; Lawal et al ., ; Michelon et al ., ). Interestingly, we found that shareholders' reactions to negative indirect signals did not vary as a function of the specific social domain repudiated by signals from a third party.…”