Corporate social responsibility and systematic risk: international evidence

PurposeThis paper aims to close gaps in the current literature according to whether there are differences regarding the relationship between corporate social performance (CSP) and systematic risk when diverse regions of the world are considered, and what the respective drivers for this relationship are. Furthermore, it tests the robustness to alternative measures for CSP and systematic risk.Design/methodology/approachThis study focuses on the impact of corporate social responsibility on systematic firm risk in an international sample. The authors measure CSP emerging from a company's social responsibility efforts by utilizing a CSP rating framework that covers a variety of dimensions. The instrumental variable approach is applied to mitigate endogeneity and identify causal relationships.FindingsThe impact of overall CSP on systematic risk is most distinct for North American firms and, in descending order, weaker in Europe, Asia–Pacific and Japan. Risk mitigation applies across all four regions. However, the magnitude of impact differs. While the most critical drivers in North America and Japan include product responsibility, Europe is affected most by the employees category and Asia–Pacific by environmental innovation.Practical implicationsThe findings help firms to control their cost of equity and investors may identify low-risk stocks by considering certain aspects of CSP.Originality/valueThis study distinguishes itself from previous literature addressing the connection between systematic risk and CSP by focusing on regional differences in an international sample, using the very transparent CSP measures of Asset4, identifying underlying impact drivers, and testing for robustness to alternative measures of systematic risk.

How government withdrawal affects corporate social performance?

This study aims to investigate whether government withdrawal affect corporate social responsibility (CSR) performance, and how CEO’s political connection moderates its relationship. We use sample data from Chinese listed firms over the 2010 to 2015 period to test our hypotheses. We find that decrease in state ownership through government withdrawal tends to negatively affect firms’ CSR performance, but the CEO’s political connection weakens its negative relationship and increases the firm’s likelihood towards CSR activities. Our findings imply that firm’s social engagement mainly result from high governmental involvement, and usually from political connections, because such firms are subject to close scrutiny by stakeholders and thus are more likely to improve social performance. Moreover, this research provides important implications to policy makers regarding the social outcomes of government withdrawal and the usefulness of firms’ political connection in developing economies like China. Este estudio tiene como objetivo investigar si la retirada del gobierno afecta al rendimiento de la responsabilidad social corporativa (RSC), y cómo la conexión política del CEO modera su relación. Utilizamos los datos de una muestra de empresas chinas que cotizan en bolsa durante el período 2010-2015 para comprobar nuestras hipótesis. Encontramos que la disminución de la propiedad estatal a través de la retirada del gobierno tiende a afectar negativamente a los resultados de RSC de las empresas, pero la conexión política del CEO debilita su relación negativa y aumenta la probabilidad de la empresa hacia las actividades de RSC. Nuestras conclusiones implican que el compromiso social de las empresas se debe principalmente a la alta participación gubernamental, y normalmente a las conexiones políticas, porque estas empresas están sometidas a un estrecho escrutinio por parte de las partes interesadas y, por lo tanto, es más probable que mejoren sus resultados sociales. Además, esta investigación ofrece importantes implicaciones para los responsables políticos en relación con los resultados sociales de la retirada del gobierno y la utilidad de la conexión política de las empresas en economías en desarrollo como China.

Does Board of Directors Independence Behave Opportunistically or Ethically? Study Corporation Social Responsibility and Earning Management in Indonesia

ABSTRACT This paper explores the opportunistic issues of EM and ethical issues of CSR where we aim to examine the relationship between CSR and EM and involve the role of BOD independence. Investigation of the relationship using corporate social performance theory where the research sample is a company that publishes sustainability reporting - GRI index for the period 2016 to 2019 in Indonesia. CSR does not affect EM, on the contrary, BOD independence has a positive and significant effect on EM. That is, BOD independence behaves opportunistically. Another finding is that BOD independence does not strengthen or weaken the relationship between CSR and EM. Therefore, despite being opportunistic, BOD independence does not use CSR as a reflection of ethical values to cover EM practices. This paper contributes to showing that BOD independence has 2 characters, namely opportunist on the one hand and ethical on the other.

Social Performance Feedback and Firm Communication Strategy

Although corporate social performance has become an important measure of firm performance, there is little understanding about how firms respond to social performance feedback and how impression management may function as an important firm response to the feedback. Building upon and extending the literature on the behavioral theory of the firm and the strategic use of language, we examine how discrepancies between firms’ social performance and their aspiration levels affect how firms use visual expressions in their CSR reports. In addition, we argue that the relationship between social performance discrepancies and the use of visual expressions in CSR reports is moderated by the extent to which firms conduct socially responsible activities to enhance legitimacy (reflected in the level of state ownership) and the extent to which firms engage in social activities to improve financial performance (reflected in foreign exposure). Using a sample of Chinese firms issuing CSR reports from 2009 to 2017, our empirical results provide strong support for these arguments.

Socially Irresponsible Employment in Emerging-Market Manufacturers

Are socially irresponsible employment practices, such as abusive discipline and wage theft, systematically tied to manufacturing outcomes in emerging-market countries? Drawing on a stream of stakeholder theory that emphasizes economic interdependencies and insights from the fields of industrial relations and human resource management, we argue that working conditions within a firm are facets of a systemic approach to value creation and value appropriation. Some manufacturers operate “low road” systems that rest on harmful practices. Others operate “high road” systems in which the need to develop employees’ human capital deters socially irresponsible employment practices. To test the theory, we conduct a large-scale study of labor violations and manufacturing outcomes by analyzing data on over four thousand export-oriented small manufacturers in 48 emerging-market countries. The analysis demonstrates that socially irresponsible employment practices are associated with inferior firm-level manufacturing outcomes even after controlling for the effects of firm size, industry, product mix, production processes, host country, destination markets, and buyer mix. The theory and results suggest an opportunity for multinational corporations to improve corporate social performance in global value chains by encouraging their suppliers to transition to systems of value creation that rely on the development of worker human capital.

How the Public Shaming of Peers Enhances Corporate Social Performance: Evidence from Blacklisted Firms in Japan

This study aims to show how vicarious public shaming, that is the public disgrace of several peers in the same industry, affects focal firms’ corporate social performance (CSP). Drawing on the legitimacy and category theories, we suggest that since an increased vicarious public disgrace harms the legitimacy of the entire industry, peer companies attempt to negate these potential legitimacy losses by improving their CSP. This tendency is more pronounced in firms that have a poor record of CSP. Using a context of the Japanese blacklisted companies by the government for labor law delinquency between 2016 and 2019, our results confirm that vicarious public disgrace is a significant antecedent to improving CSP. Our findings also imply that the appropriate use of public disgrace can enhance overall the CSP levels.