The dark and bright sides of policy uncertainty: do too many cooks spoil the broth?

Abstract

Purpose This paper aims to investigate the nonlinear relationship between corporate social performance (CSP) and economic policy uncertainty (EPU). Design/methodology/approach This paper uses panel regression techniques to examine a sample consisting of UK-listed non-financial companies during 2000–2018. Findings The authors found that EPU increases corporate social responsibility which suggests that firms become more socially proactive during the period of heightened EPU. Such countermeasure enhances CSP and is likely a part of a competitive strategy and an insurance mechanism to protect firms against uncertainty in long-term. Further analysis shows a nonlinear relationship between the two factors, suggesting that in a heightened uncertain business environment, the insurance benefit generated by CSP is neutralised by the corresponding cost and, therefore, the positive relationship between EPU and CSP reverses. Originality/value This paper is the first to find a nonlinear relationship between CSP and EPU, indicating that too much uncertainty in macroeconomic policies deteriorates the benefits of CSP to the point that the CSP – EPU relationship becomes negative. The results suggest that policy uncertainty has both the bright side and the dark side where too many cooks eventually spoil the broth.

Do socially responsible firms always disclose high-quality earnings? Evidence from an emerging socialist economy

“…Corporate social responsibility (CSR) is of crucial importance to stakeholders of businesses, including employees, customers, shareholders, creditors, the environment and the society at large. CSR is the concept that firms do not operate for the sole purpose of profit, but voluntarily integrate social, environmental and governance goals in their operations (Hillman and Keim, 2001; Dyllick and Hockerts, 2002; Coombs and Gilley, 2005; Branco and Rodrigues, 2006; Hoang et al , 2021). Prior studies have indicated the benefits of being socially responsible, including better reputation, building trust of customers and society, increasing transparency and accountability, better access to finance, creating sustainable competitive advantages over their peers and profit-maximizing (Godfrey, 2005; Tian et al , 2011; Kong, 2012; Goering, 2013; Cheng et al , 2014; Naseem et al , 2019; Kamal, 2021; Oanh and Hoang, 2020).…”

The Nonlinear Effect of Economic Policy Uncertainty on Corporate Social Responsibility

“…Some authors believe that economic policy uncertainty and enterprise social responsibilities are jointly affected by "promotional effects" and "inhibition effects". Hoang et al investigated the nonlinear relationship between corporate social performance and EPU in the UK [50]. The existing research on this topic mostly pertains to a linear perspective and does not consider regional EPU heterogeneity.…”