The goal of this paper was to investigate whether and how a firm that engages in different kinds of corporate social performance can create a favorable corporate reputation among its stakeholders, and as a result achieve a good financial performance. Building on stakeholder theory, we distinguish two types of reputation—reputation among public stakeholders and reputation among financial stakeholders. We argue that CSP activities affect these two reputations differently. In addition, we empirically test the relationship among different types of CSP, reputation (...) among public and financial stakeholders, and financial performance. Our results suggest that Carroll’s four types of CSP affect financial performance differently, and their effects are mediated by reputation among public and financial stakeholders. Our findings provide guidelines for managers on choosing to emphasize certain CSP aspects in their communication, depending on the specific stakeholder group they are targeting. (shrink)

The role of a corporation is often debated as a mutually exclusive choice between economic responsibility to shareholders and social responsibility to society. An evolving viewpoint embraces an integrated approach focused on long-term value creation for shareholders which benefits other stakeholders. Maximizing long-term shareholder value as a corporate objective can be compatible with stakeholder theory when an enlightened shareholder maximization strategy is embraced. Firms implementing an enlightened shareholder maximization strategy are expected to make decisions and use resources which achieve long-term (...) value-creating outcomes. However, critics of enlightened shareholder maximization as a corporate goal contend this strategy conflicts with maximizing shareholder value. This study explores whether firms which embrace a balanced enlightened shareholder maximization strategy indeed create long-term value which does not sacrifice shareholder wealth. (shrink)

The authors describe the intensity and orientation of the corporate social responsibility reporting in four Spanish industries and explore the relationship that exists between both concepts and an independent measurement of reputation for CSR. The results demonstrate that the CSR reporting is especially relevant and useful in the finance industry. Finance companies report significantly more CSR information than most industries in Spain, and this reporting is more closely linked to their CSRR than the CSR reporting of basic, consumer goods and (...) services industries. (shrink)

This article evaluates the effect of different human resource management (HRM) practices on organizations’ environmental performance. We develop a model to evaluate the influence of a broad range of HRM practices, including environmental performance criteria in managers’ performance evaluations and two types of internal corporate social responsibility (CSR) practices: socially responsible employee benefits and corporate volunteering practices. To this end, we analyze a sample of 142 manufacturing companies that have completed B Lab’s Impact Assessment process to certify their environmental performance. (...) The results show that including environmental criteria in a higher proportion of managers’ performance evaluations directly impacts organizations’ environmental performance and strengthens the positive effect of other environmental management practices. The findings also demonstrate the direct effects of both types of CSR practices on an organization’s environmental performance. Our study advances recent work on Green HRM and CSR by identifying the specific HRM practices that allow organizations to move from being part of the world’s environmental problem to being part of the solution. (shrink)

The increasing debate on corporate ethics raises the question of whether consumers are willing to reward and punish corporate behaviour based on its ethicality. In this context, this article investigates the direct effect on consumers' willingness to pay. Price response to product-related ethical information is explored in an experiment dealing with social issues in sportswear and environmental issues in consumer electronics. It is shown that in both areas, consumers demonstrate an increased willingness to pay for ethically produced goods. However, the (...) response is subject to a negativity bias. In contrast to prior research that used abstract stimulus measures, a ratio for quantifying this bias is suggested based on consumers' willingness to pay and their price expectations. This measure allows us to analyse a consumer's individual bias. (shrink)

The increasing debate on corporate ethics raises the question of whether consumers are willing to reward and punish corporate behaviour based on its ethicality. In this context, this article investigates the direct effect on consumers' willingness to pay. Price response to product‐related ethical information is explored in an experiment dealing with social issues in sportswear and environmental issues in consumer electronics. It is shown that in both areas, consumers demonstrate an increased willingness to pay for ethically produced goods. However, the (...) response is subject to a negativity bias. In contrast to prior research that used abstract stimulus measures, a ratio for quantifying this bias is suggested based on consumers' willingness to pay and their price expectations. This measure allows us to analyse a consumer's individual bias. (shrink)

Existing research on the financial implications of corporate social responsibility (CSR) for firms has predominantly focused on positive aspects of CSR, overlooking that firms also undertake actions and initiatives that qualify as negative CSR. Moreover, studies in this area have not investigated how both positive and negative CSR affect the financial risk of firms. As such, in this research, the authors provide a framework linking both positive and negative CSR to idiosyncratic risk of firms. While investigating these relationships, the authors (...) also analyze the moderating role of financial leverage of firms. Overall, analysis of secondary information for firms from multiple industries over the years 2000–2009 shows that CSR has a significant effect on the idiosyncratic risk of firms, with positive CSR reducing risk and negative CSR increasing it. Results also show that the reduction in risk from positive CSR is not guaranteed, with firms having high levels of financial leverage witnessing lower idiosyncratic risk reduction. (shrink)

This article reviews empirical research of corporate social performance using Kinder, Lydenberg, Domini social ratings data through 2011. The review synthesizes 100 empirical studies, noting consistencies and inconsistencies among studies examining similar constructs. Notable consistencies were that, although accounting measures of financial performance were a positive outcome of CSP, the same was not often true of stock returns. Also, demographics of top management teams increased CSP strengths, but did not reduce concerns, whereas organizational decentralization reduced CSP concerns. Notable inconsistencies were (...) that CEO demographics were not as often related to CSP as were TMT demographics, indicating that managerial discretion may be an important mitigating factor shaping managerial effects on CSP. Also, although CSP for some organizations seemed influenced by institutional pressures, other organizations appeared to be less influenced, perhaps suggesting that some organizations are more able than others to resist institutional pressures. Future research should attempt to probe observed consistencies and inconsistencies, and to test the boundaries of observed relationships, toward a disciplined program of middle-range theory development. (shrink)

Despite the increased attention to corporate social responsibility (CSR) and regulatory changes in recent years, little is known about how apparel companies are implementing and communicating CSR practices to their stakeholders. To fill the gap, this study investigated the range and strategies of leading apparel specialty retailers’ CSR practices as communicated on their websites over a longitudinal period of 1 year. In total, 17 apparel specialty retailers were included in the analysis. The companies’ websites were content-analyzed in-depth using the coding (...) criteria focusing on labor and environmental issues developed for this study. The initial data were collected in November 2011 and the study was replicated in December 2012 to examine any changes in the CSR practices. As of 2011 only nine companies addressed CSR issues on their websites at different degrees despite their leadership positions in the industry. Environmental issues were addressed by only five companies, with different ranges of practices. In 2012, all 17 companies addressed labor issues on their websites with varying degrees of specificity. In terms of environmental issues, six companies (an increase of one company from 2011) addressed environmental initiatives on their websites with wider ranges of practices. Discussed are problems and opportunities, as well as the role of the government and stakeholders, for the effective communications of CSR policies and initiatives for the apparel industry. (shrink)

Using a unique dataset provided by the international rating agency GES®, we investigate the effects of corporate sustainability and industry-related exposure to environmental and social risks on the market value of MSCI World firms. The results show a negative relationship in the earlier years of our sample period. However, the analysis reveals that the capital market perception of sustainability has changed owing to the financial crisis. Looking at the height of the crisis in September 2008, the month in which Lehman (...) Brothers shocked the world’s capital markets by filing for Chapter 11 bankruptcy protection, we find that the previously negative perception of corporate sustainability across its various dimensions was positively affected and offset. In addition, as a moderated regression analysis shows, the crisis led to a positive perception of corporate sustainability in industries that are exposed to higher environmental and social risks. Our study has the practical implication that executives, in particular in industries with high environmental and social risks, should increase their commitment to corporate sustainability due to the changes in the institutional setting triggered by the financial crisis. (shrink)

This paper examines the role of mutual funds in corporate social responsibility. Using a fund-level, holdings-based CSR score, we find that CSR-friendly mutual funds improve firms’ CSR standings. This effect is more pronounced for firms with higher mutual fund ownership and stronger corporate governance. We further show that while CSR-friendly mutual funds have influence on almost all CSR categories, they focus on increasing CSR strengths rather than reducing CSR concerns. We also discover that CSR-friendly funds are more likely to vote (...) in favor of CSR proposals, and that firms owned by CSR-friendly funds are more likely to link their CEO compensation to CSR outcomes. These results suggest that actively managed mutual funds, which were previously thought to be indifferent to social and ethical issues, play a significant role in corporate social outcomes of the firms they invest in. (shrink)

This study examines the relationship between corporate social responsibility -related information and the value of financial analysts’ stock recommendations. The information environment in which analysts operate in is affected by CSR-related reports that companies voluntarily issue as well as information that becomes available through third-party analysis and rating institutions. We find an inverse relationship between the value of both upgrade and downgrade revisions and the supply of CSR-related information compiled by third-party institutions, suggesting that CSR-related data are associated with a (...) richer information environment that makes it more challenging for analysts to issue informative recommendations, thereby mitigating their contribution to the price discovery process. We further find that the value of analysts’ recommendation revisions is lower for companies that voluntarily issue CSR-related reports compared to those that do not make such disclosures and that the overall effect of CSR on the informativeness of analysts is stronger in the recent years. Our findings have implications for the evolution of CSR reporting as the incorporation of CSR-related information into market prices legitimizes the relevance of such reports. Furthermore, these findings contribute to our understanding of the role and value of information intermediaries in changing information environments. (shrink)

Four predictors were posited to affect business student attitudes about the social responsibilities of business, also known as corporate social responsibility (CSR). Applying Forsyth's (1980, "Journal of Personality and Social Psychology" 39, 175–184, 1992, "Journal of Business Ethics" 11, 461–470) personal moral philosophy model, we found that ethical idealism had a positive relationship with CSR attitudes, and ethical relativism a negative relationship. We also found materialism to be negatively related to CSR attitudes. Spirituality among business students did not significantly predict (...) CSR attitudes. Understanding the relationship between CSR attitudes and the significant predictors has important implications for researchers and teachers in particular. (shrink)

This paper investigates whether relative corporate sustainability as measured by the SAM sustainability ranking and sustainability reporting in terms of Global Reporting Initiative application levels are associated with a higher market valuation. We conduct a value relevance study for the 600 largest European companies with the Feltham and Ohlson valuation model as a reference point. Our results indicate that for the observation period 2001 to 2011, the association between corporate sustainability and market value is positive. The empirical evidence of a (...) positive relationship between GRI reporting and market value is statistically significant in some but not all of the model specifications. We find no evidence of interaction between the value relevance of corporate sustainability and sustainability reporting, nor do we find any positive effect of external assurance on the capital market perception of GRI application levels. Our results support the notion that conducting business in accordance with ethical norms is also a shareholder value-increasing business strategy. However, it is not possible to verify the information given in sustainability reports through external assurance. (shrink)

The authors explore the relation between the way different family firms are named, and the shareholder value impact of these firms’ new product introductions. Using an event study of 1,294 product introduction announcements of 107 publicly listed U.S. family firms, the authors find that the presence of the founding family’s name as part of a family firm’s name acts as a valuable firm resource, increasing the abnormal stock returns surrounding the firm’s new product introductions. Superior returns to family-named firms’ new (...) product introductions are partially mediated by these firms’ history of ethical product-related behavior: family-named firms, particularly those with corporate branding, and those wherein a founding family member holds the CEO or chairman position, are more likely to exhibit a history of avoiding such product-related controversies as product safety issues, and deceptive advertising. The authors highlight the managerial and theoretical contributions of this research. (shrink)

Corporate social responsibility (CSR) is a dramatically expanding area of activity for managers and academics. Consumer demand for responsibly produced and fair trade goods is swelling, resulting in increased demands for CSR activity and information. Assets under professional management and invested with a social responsibility focus have also grown dramatically over the last 10 years. Investors choosing social responsibility investment strategies require access to information not provided through traditional financial statements and analyses. At the same time, a group of mainstream (...) institutional investors has encouraged a movement to incorporate environmental, social, and governance information into equity analysis, and multi-stakeholder groups have supported enhanced business reporting on these issues. The majority of research in this area has been performed on European and Australian firms. We expand on this literature by exploring the CSR disclosure practices of a size- and industry-stratified sample of 50 publicly traded U.S. firms, performing a content analysis on the complete identifiable public information portfolio provided by these firms during 2004. CSR activity was disclosed by most firms in the sample, and was included in nearly half of public disclosures made during that year by the sample firms. Areas of particular emphasis are community matters, health and safety, diversity and human resources (HR) matters, and environmental programs. The primary venues of disclosure are mass media releases such as corporate websites and press releases, followed closely by disclosures contained in mandatory filings. Consistent with prior research, we identify industry effects in terms of content, emphasis, and reporting format choices. Unlike prior research, we can offer only mixed evidence on the existence of a size effect. The disclosure frequency and emphasis is significantly different for the largest one-fifth of the firms, but no identifiable trends are present within the rest of the sample. There are, however, identifiable size effects with respect to reporting format choice. Use of websites is positively related to firm size, while the use of mandatory filings is negatively related to firm size. Finally, and also consistent with prior literature, we document a generally self-laudatory tone in the content of CSR disclosures for the sample firms. (shrink)

In this article, we examine how firms design executive compensation in light of their risk environment. Prior literature shows that corporate environmental responsibility (CER) of a firm inversely affects firm risk. We argue that firms with better CER performance benefit from the reduced firm risk, and therefore are more likely to provide greater managerial risk‐taking incentives to encourage the risk‐averse managers to undertake risk‐increasing but positive net present value (NPV) investments. Consistent with our hypotheses, we find that a firm’s CER (...) rating is positively associated with its CEO risk‐taking incentives (vega) in the following year. We also document cross‐sectional variations in the CER‐vega relationship, that is, a weaker association in the controversial industries. This study contributes to the literature by investigating the role of CER on executive compensation design from the perspective of risk management. (shrink)

This paper investigates the effect of corporate social responsibility (CSR) on firm value and seeks to identify the source of that value, by disaggregating the effects on forecasted profitability, long-term growth and the cost of capital. The study explores the possible risk (reducing) effects of CSR and their implications for financial measures of performance. For individual dimensions of CSR, in general strengths are positively valued and concerns are negatively valued, although the effect is not universal across all dimensions of CSR. (...) We show that these valuation effects are principally driven by CSR performance associated with better long run growth prospects, with an additional minor contribution made by a lower cost of equity capital. (shrink)

Social and environmental ratings provided by social rating agencies are multidimensional. The first goal of our paper is to identify a small number of independent and relevant socially responsible (SR) dimensions reflecting a firms’ coherent posture toward social issues. We put forward that these dimensions are not exactly the same as the ESG ones (Environment, Social, and Governance). Using the six sub-ratings provided by the Vigeo rating agency, we perform a principal component analysis and we highlight three main independent SR (...) dimensions related to (1) business stakeholders (employees, customers, and suppliers), (2) societal stakeholders (environment and society), and (3) financial stakeholders (stockholders and debt holders). The second objective of our paper is to explore the link between stock returns and these three SR dimensions. Our most notable finding is that for each SR dimension, investors ask for an additional risk premium when they accept to hold non-socially responsible stocks. The cost of equity is thus lower for SR firms. The average premium over the period 2003–2010 is larger for the components “business stakeholders” and “financial stakeholders” than for the component “societal stakeholders.” The premium for this last component has only existed since the end of 2008. Since that time, environment and community involvement have become important risk factors strongly considered by investors. For the three dimensions, investors notably penalize large non-social firms and reward small social firms. (shrink)

This study investigates the key factors that elicit financial reporting fraud among companies in Malaysia. Using enforcement action releases issued by the Security Commission of Malaysia and Bursa Malaysia, we identify a sample of 76 firms that had committed financial reporting fraud during the period of 1996–2016. We use the fraud triangle framework and the Malaysian International Standards on Auditing 240 to identify the factors. Since the simple probit model fails to address the identification problem, we estimate our results using (...) a bivariate probit model. The new model estimates the effects of pressure, opportunity, and rationalization on the probability of fraud likelihood by disentangling the detection probability of fraud. Among several proxies used for pressure, our results suggest that aggressive tax reporting and financial difficulties increase the likelihood of fraud commission. In regard to opportunity, we find that dedicated institutional investors, independence of the board, effective audit committee, and the presence of a female on the board provide active monitoring and oversight in reducing fraud occurrence. Results for rationalization suggest that prior violations and frequent changes of external auditors increase the chances of fraud occurrence. This research offers possible insights to auditors, managers, and regulators to prevent, detect, and react to fraud. Specifically, it highlights the specific factors that may exacerbate the fraudulent intentions of firms. (shrink)

Adopting an instrumental approach for stakeholder management, we focus on two primary stakeholder groups to investigate the relationship between employee treatment and loan contracts with banks. We find strong evidence that fair employee treatment reduces loan price and limits the use of financial covenants. In addition, we document that relationship bank lenders price both the levels and changes in the quality of employee treatment, whereas first-time bank lenders only care about the levels of fair employee treatment. Taking a contingency perspective, (...) we find that industry competition and firm asset intangibility moderate the relationship between good human resource management and bank loan costs. The cost reduction effect of fair employee treatment is stronger for firms operating in a more competitive industry and having higher levels of intangible assets. (shrink)

As corporate managers interact with nonshareholder stakeholders, potential tradeoffs emerge and questions arise as to how these interactions impact shareholder value. We argue that this shareholder—stakeholder debate is an important issue within the overall corporate governance and corporate policy domain and examine one such stakeholder group - employees - by studying labor-friendly corporate practices. We find that announcements of labor-friendly policies are associated with positive abnormal stock returns. Labor-friendly firms also outperform otherwise similar firms, both in terms of long-run stock (...) market returns and operating results. In addition, we find that the probability and benefits of labor-friendliness increase with the demand for highly skilled labor. Our analysis of excess executive compensation suggests that top management derives no pecuniary benefits from labor-friendly practices. We interpret our results as consistent with a genuine concern for employees translating into higher productivity and profitability, which in turn facilitate value creation. It appears that the benefits of labor-friendly practices significantly outweigh the costs and that what is good for employees is good for shareholders. (shrink)

The value relevance of corporate social responsibility performance disclosures for financial markets participants remains uncertain despite advances in the literature and the recent proliferation of CSR disclosures around the world. Using an experimental approach involving MBA students at universities in the United States and Lebanon, we study the value relevance of CSR disclosures by testing whether they affect participants’ personal portfolio management investment decisions. We also examine whether the degree to which the CSR disclosures affect these decisions is influenced by (...) corporate governance quality. To examine these issues, we examine the effect of environmental performance on investment decisions in Experiment 1, and the effect of labor performance on investment decisions in Experiment 2. Results from both experiments show that investment decisions are affected by CSR performance. Analysis shows that governance strength exerts a marginal effect on the investment decision only when CSR performance is strong. Lebanese participants appear to be more sensitive to weak performance than U.S. participants. Overall, our findings extend the CSR disclosures literature by documenting the value relevance of CSR performance for financial markets participants’ decision making. These findings also extend the governance literature by documenting that consistent with attribution theory, the effects of governance quality are contingent upon the information and decision context, and that efforts to decontextualize governance may be counterproductive. (shrink)

This article is a first attempt to line out the conditions under which executives might have a real self-interest in pursuing a broad stakeholder management (SM) orientation to enlarge their power. We suggest that managers have wider latitude of action under an SM approach, even when this is instrumental to financial performance. The causally ambiguity of the performance effects of idiosyncratic relationships with stakeholders not only makes SM strategy difficult for competitors to imitate but also increases managerial discretion. When managers (...) use this situation for their own benefit, they can undermine the purported goals of the SM approach. By analyzing some of the factors that might lead to such disfunctionalities, this article advances a theory of the potential dark side of SM. (shrink)

Stories about corporate social responsibility have become very frequent over the past decade, and managers can no longer ignore their impact on firm value. In this paper, we investigate the extent and the determinants of the stock market’s reaction following ordinary news related to environmental, social and governance issues—the so-called ESG factors. To that purpose, we use an original database provided by Covalence EthicalQuote. Our empirical analysis is based on about 33,000 ESG news, targeting one hundred listed companies over the (...) period 2002–2010. On average, firms facing negative events experience a drop in their market value of 0.1%, whereas companies gain nothing on average from positive announcements. We find also that market participants are responsive to the media, but they do not react to firms’ press releases or to NGOs’ disclosures. Moreover, our results indicate that sector’s reputation mitigates the loss and that cultural proximity and lexical contents of ESG disclosures play a significant role in the magnitude of the impact. (shrink)

In this study, we examine the relation between corporate environmental responsibility and risk in U.S. public firms. We develop and test the risk-reduction, resource-constraint, and cross-industry variation hypotheses. Using an extensive U.S. sample during the 1991–2012 period, we find that for U.S. industries as a whole, CER engagement inversely affects firm risk after controlling for various firm characteristics. The result remains robust when we use firm fixed effect or an alternative measure of CER using principal component analysis or downside risk (...) measures. To address the concern of endogeneity bias, we use a system equations approach and dynamic system generalized methods of moment regressions, and continue to find that environmentally responsible firms experience lower risk. These findings support the risk-reduction hypothesis, but not the resource-constraint hypothesis, along with the notion that the top management in U.S. firms is generally risk averse and that their CER engagement facilitates their risk management efforts. Our cross-industry analysis further reveals that the inverse CER-risk association mainly comes from the manufacturing sector, whereas in the service sector, CER tends to increase firm risk. (shrink)

In this study, we explore how investors reconcile information on firms’ social responsibility with analysts’ assessments of future firm risk in the pricing of long-term bonds. We ask whether investors pay attention to small strides toward and/or small slips away from socially responsible behavior, arguing that analysts’ corporate bias toward gains and against losses influences investor reactions to corporate social responsibility. We hypothesize that analysts notice and reward improvements in social responsibility, yet excuse lapses. We find support for this hypothesis, (...) using a unique dataset of long-term bonds that combines lagged measures of firm-level financial and social performance with bond-specific data pertaining to risk of default and pricing. The empirically robust asymmetry in investor responses to small but often cumulative increases versus decreases in corporate social responsibility reveals an under-examined root cause of longer-term, larger-scale distortions in financial market returns regarding corporate social performance. Our findings elaborate earlier behavioral research on how corporate bias influences analysts’ short-term assessments of economic risk, by theorizing why this corporate bias may influence long-term assessments of social risk. Our work also motivates more critical scrutiny of the role analysts play in revising the future risk of today’s social action versus inaction. (shrink)

We investigate the financing strategies of environmentally responsible firms to understand how they set target capital structures and make incremental financing decisions. Literature shows that firms with better environmental performance have lower risk and better access to financing. However, it is not obvious how these firms choose to finance their investments. Using an extensive data set of U.S. firms, we find that firms with superior environmental performance have significantly lower debt ratios and use mostly short‐term debt for temporary financing needs. (...) In doing so, environmentally responsible firms are able to achieve more tax savings and experience lower costs of financial distress. Our results provide new empirical facts about environmental performance and financing decisions, and they help explain the observed relationship between environmental performance and economic performance. (shrink)

Using a worldwide sample, we examine whether corporate social responsibility performance has an impact on the value of cash holdings. We find that investors assign a higher value to cash held by firms that have a high CSR rating. This result is consistent with the idea that CSR policies are a means for managers to act in the shareholders’ interests by mitigating conflicts with stakeholders. Finally, we reveal that CSR performance has a positive impact on the value of cash holdings (...) only for firms which operate in countries where shareholders are well protected from expropriation by managers and in countries where the institutional quality is high. (shrink)