Washing Away Your Sins? Corporate Social Responsibility, Corporate Social Irresponsibility, and Firm Performance

Abstract

The authors address the questions of whether and how corporate social responsibility (CSR) relates to firm performance and, in so doing, identify four mechanisms pertaining to this relationship: (1) slack resources lead to CSR (i.e., slack resources mechanism) (2) CSR improves performance (i.e., good management mechanism), (3) CSR makes amends for past corporate social irresponsibility (CSI) (i.e., penance mechanism), and (4) CSR insures against subsequent CSI (i.e., insurance mechanism). Using an integrative approach, the authors incorporate the four mechanisms in their empirical model specification. Specifically, to model the interplay among CSR, CSI, and firm performance and to test the four mechanisms simultaneously, they propose a structural panel vector autoregression specification. In support of the good management mechanism, results from an unbalanced panel data set of more than 4,500 firms and up to 19 years suggest that firms that engage in CSR are likely to benefit financially from their CSR investments. Moreover, the authors do not find support for the slack resources or the insurance mechanism. In contrast, and in support of the penance mechanism, often firms' CSR seems to trail their CSI. However, the results also suggest that the penance mechanism is ineffective in offsetting negative performance effects due to CSI.

The impact of corporate social responsibility on customer attitudes and retention—the moderating role of brand success indicators

“…For instance, CSR efforts may pay off more solidly for a market challenger than for a market leader (Du et al 2011). These countervailing effects might explain why many studies find no significant effect of CSR on firm performance (Kang et al 2016). As a result, company or brand characteristics become critical differentiators between firms that can successfully engage in CSR and those that can at best expect no effect of their CSR efforts.…”

“…Consumers may have a lay theory that company resources are zero-sum, implying that resources that are invested in improving a company's CSR record are diverted from strengthening a company's market position and improving a company's products and/or services (Newman et al 2014). Therefore, consumers may perceive that less successful companies' engagement in CSR comes at the expense of developing stronger corporate abilities (Luo and Bhattacharya 2006), and reason that only successful companies possess sufficient slack resources to invest in CSR (Kang et al 2016). This line of reasoning is supported by literature cautioning that CSR efforts of less innovative companies may be interpreted as focusing on the wrong priorities (Luo and Bhattacharya 2006;Newman et al 2014).…”

The Use by Large Polish Organizations of Information about CSR Activities in e-Recruitment

“…This data leads us to an alternative explanation for management investing in CSR. The reasons are not so much future financial rewards, but a surplus of resources (slack resource mechanism), or else a discretional decision made by managers with no direct connection to future rewards (good management mechanism) (Kang et al, 2016).…”

“…Although current research shows that a good CSR reputation has promising effects for economic returns (Godfrey et al, 2009;Kang et al, 2016), studies usually assume that CSR investments are significant, and hence that the company will not be suspected of consciously manipulating public opinion. CSR credibility is rarely taken into account as a factor in research, as it is common knowledge that manipulation of this kind has a destructive effect on reputation (Woźniak, 2014a).…”

Corporate social responsibility disclosure quality and analyst forecast

“…In support of the good management mechanism, Kang et al (2016) suggest that firms that engage in corporate social responsibility are likely to benefit financially from their csr investments. Applying Granger causality tests, Lev et al (2009) examine the impact of corporate charitable contributions on future revenue and find significantly association.…”