Journal of Business Ethics

, Volume 117, Issue 1, pp 67–83 | Cite as

Do Non-socially Responsible Companies Achieve Legitimacy Through Socially Responsible Actions? The Mediating Effect of Innovation

  • Belen Blanco
  • Encarna Guillamón-Saorín
  • Andrés GuiralEmail author


This study investigates the effects on organization’s financial performances of, first, the extent to which the organizations are involved in controversial business activities, and second, their level of social performance. These companies can be considered non-socially responsible given the harmful nature of the activities they are involved in. Managers of these companies may still have incentives to pursue socially responsible actions if they believe that engaging on those actions will help them to achieve legitimacy and improve investors’ perception about them. We develop a comprehensive methodology to investigate these corporate social performance (CSP)-related effects in a complex but specific setting. To this end, we analyze a sample of 202 US firms for the period 2005–2008 using a novel method in this area: partial least squares. Our results indicate that, contrary to the general findings in prior literature, companies involved in controversial business activities which engage in CSP do not directly reduce the negative perception that stakeholders have about them. Instead, we found evidence of a positive mediation effect of CSP on financial market-based performance through innovation.


Corporate social performance Financial performance Controversial activities Innovation intensity Partial least squares 



This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government (NRF-2012-S1A3A2-2012S1A3A2033412). Encarna Guillamon-Saorin acknowledges financial contribution from the Spanish Ministry of Science and Innovation (ECO2010-19314) and Comunidad Autonoma de Madrid (SEJ2008-00059-003/SEJ2011-00088-001). Belen Blanco acknowledges financial assistance from the Spanish Ministry of Innovation and Science (ECO2010-19314, ECO2008-06238- C02-01/ECON, SEJ2007-67582-C02-02/ECON, ECO2009-10796 and Consolider Grant #2006/04046/002). Andrés Guiral acknowledges financial contribution from the Spanish Ministry of Innovation and Science (research projects SEJ2004-00791ECON, SEJ2007-62215/ECON/FEDER, SEJ 2006-14021, ECO2010-17463 ECON-FEDER).


  1. Aerts, W., & Cormier, D. (2009). Media legitimacy and corporate environmental communication. Accounting, Organizations and Society, 34(1), 1–27.CrossRefGoogle Scholar
  2. Barney, J. (1986). Organizational culture: Can it be a source of sustained competitive advantage? Academy of Management Review, 11(3), 656–665.Google Scholar
  3. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120.CrossRefGoogle Scholar
  4. Baron, D. (2001). Private politics, corporate social responsibility and integrated strategy. Journal of Economics and Management Strategy, 10, 7–45.CrossRefGoogle Scholar
  5. Barth, M., Beaver, W., & Landsman, W. (1998). Relative Valuation roles of equity book and net income as a function of financial health. Journal of Accounting and Economics, 25(1), 1–34.CrossRefGoogle Scholar
  6. Berrone, P., Surroca, J., & Tribo, J. A. (2007). Corporate ethical identity as a determinant of firm performance: A test of the mediating role of stakeholder satisfaction. Journal of Business Ethics, 76, 35–53.CrossRefGoogle Scholar
  7. Beurden, P., & Gössling, T. (2008). The worth of values—a literature review on the relation between corporate social and financial performance. Journal of Business Ethics, 82, 407–424.CrossRefGoogle Scholar
  8. Brennan, N. M., Guillamon-Saorin, E., & Pierce, A. (2009). Impression management: Developing and illustrating a scheme of analysis for narrative disclosures—A methodological note. Accounting, Auditing & Accountability Journal, 22(5), 789–832.Google Scholar
  9. Byrne, E. (2010). The US military–industrial complex is circumstantially. Journal of Business Ethics, 95(2), 153–165.CrossRefGoogle Scholar
  10. Cai, Y., Hoje, J., & Carrie, P. (2012). Doing well while doing bad? CSR in controversial industry sectors. Journal of Business Ethics, 108(4), 467–480.CrossRefGoogle Scholar
  11. Carroll, A. B. (1979). A three-dimensional conceptual model of corporate social performance. Academy of Management Review, 4(1), 497–505.Google Scholar
  12. Chatterji, A. K., Levine, D. I., & Toffel, M. W. (2009). How well do social ratings actually measure corporate social responsibility? Journal of Economics and Management Strategy, 18(1), 125–169.CrossRefGoogle Scholar
  13. Chin, W. W. (1998). Issues and opinion on structural equation modeling. MIS Quarterly, 22(1), 7–16.Google Scholar
  14. Chung, K., & Jo, H. (1996). The impact of security analysts’ monitoring and marketing functions on the market value of firms. Journal of Financial and Quantitative Analysis, 31, 493–512.CrossRefGoogle Scholar
  15. Clement, R. W. (2006). Just how unethical is American business? Business Horizons, 49(4), 313–327.CrossRefGoogle Scholar
  16. Dewar, R. D., & Dutton, J. E. (1986). The adoption of radical and incremental innovations: An empirical analysis. Management Science, 32(11), 1422–1433.CrossRefGoogle Scholar
  17. Donaldson, I., & Davis, J. H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16, 49–64.CrossRefGoogle Scholar
  18. Donaldson, T., & Preston, L. (1995). The stakeholder theory of the corporation: Concepts, evidence and implications. The Academy Management Review, 20(1), 65–91.Google Scholar
  19. Elsbach, K. D., & Sutton, R. I. (1992). Acquiring organizational legitimacy through illegitimate actions: A marriage of institutional and impression management theories. Academy of Management Journal, 35(4), 699–738.CrossRefGoogle Scholar
  20. Falk, R. F. (1987). A primer for soft modeling. Berkeley: University of California, Institute of Human Development.Google Scholar
  21. Fornell, C., & Bookstein, F. L. (1982). Two structural equation models: LISREL and PLS applied to consumer exit-voice theory. Journal of Marketing Research, 19, 440–452.CrossRefGoogle Scholar
  22. Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research, 18, 39–50.CrossRefGoogle Scholar
  23. Fornell, C., Lorange, P., & Roos, J. (1990). The cooperative venture formation process: A latent variable structural modeling approach. Management Science, 36(10), 1246–1255.Google Scholar
  24. Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitman Publishing.Google Scholar
  25. Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times Magazine, September 13.Google Scholar
  26. Garcia Osma, B., & Guillamon-Saorin, E. (2011). Corporate governance and impression management in annual press releases. Accounting Organizations and Society, 36(4/5), 187–208.Google Scholar
  27. Guiral, A. (2012). Corporate social performance, innovation intensity and their impacts on financial performance: Evidence from lending decisions. Behavioral Research in Accounting (forthcoming).Google Scholar
  28. Hull, C. E., & Covin, J. G. (2009). Learning capability, technological parity, and innovation mode use. Journal of Product Innovation Management, 27(1), 97–114.CrossRefGoogle Scholar
  29. Hull, C. E., & Rothenberg, S. (2008). Firm performance: The interactions of corporate social performance with innovation and industry differentiation. Strategic Management Journal, 29, 781–789.CrossRefGoogle Scholar
  30. Inkpen, A. C., & Birkenshaw, J. (1994). International joint ventures and performance: An interorganizational perspective. International Business Review, 3(3), 201–217.CrossRefGoogle Scholar
  31. Jennings, P., & Zandbergen, P. (1995). Ecologically sustainable organizations: An institutional approach. Academy of Management Review, 20, 1015–1052.Google Scholar
  32. Leary, M. R., & Kowalski, R. M. (1990). Impression management: A literature review and two-component model. Psychological Bulletin, 107(1), 34–47.CrossRefGoogle Scholar
  33. Liston-Heyes, C., & Ceton, G. (2009). An investigation of real versus perceived CSP in S&P-500 firms. Journal of Business Ethics, 89(2), 283–296.Google Scholar
  34. Luo, X., & Bhattacharya, C. B. (2006). Corporate social responsibility, customer satisfaction, and market value. Journal of Marketing Research, 70, 1–18.Google Scholar
  35. Luo, X., & Bhattacharya, C. B. (2009). The debate over doing good: Corporate social performance, strategic marketing levers, and firm-idiosyncratic risk. Journal of Marketing Research, 73, 198–213.CrossRefGoogle Scholar
  36. Margolis, J. D., & Walsh, J. P. (2003). Misery loves companies: Rethinking social initiatives by business. Administrative Science Quarterly, 48(2), 268–305.CrossRefGoogle Scholar
  37. McWilliams, A., & Siegel, D. (2000). Corporate social responsibility and financial performance: Correlation or misspecification? Strategic Management Journal, 21(5), 603–609.CrossRefGoogle Scholar
  38. McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26(1), 117–127.Google Scholar
  39. McWilliams, A., Siegel, D. S., & Wright, P. M. (2006). Guest editors’ introduction, corporate social responsibility: Strategic implications. Journal of Management Studies, 43(1), 1–18.CrossRefGoogle Scholar
  40. McWilliams, A., Van Fleet, D. D., & Cory, K. (2002). “Raising rivals” costs through political strategy: An extension of the resource-based theory. Journal of Management Studies, 39, 707–723.CrossRefGoogle Scholar
  41. Meyer, J. W., & Rowan, B. (1977). Institutionalized organizations: Formal structure as myth and ceremony. American Journal of Sociology, 83, 340–362.CrossRefGoogle Scholar
  42. Miles, M. P., Munilla, L. S., & Covin, J. G. (2002). The constant gardener revisited: The effect of social blackmail ont eh marketing concept, innovation, and entrepreneurship. Journal of Business Ethics, 41(3), 287–295.CrossRefGoogle Scholar
  43. Miles, M. B., Munilla, L. S., & Covin, J. G. (2004). Innovation, ethics, and entrepreneurship. Journal of Business Ethics, 54(1), 97–101.CrossRefGoogle Scholar
  44. Nelling, E., & Webb, E. (2009). Corporate social responsibility and financial performance: The “virtuous circle” revisited. Review of Quantitative Financial Accounting, 32, 197–209.CrossRefGoogle Scholar
  45. Nunnally, J. C. (1978). Psychometric theory. New York: McGraw-Hill.Google Scholar
  46. Ohlson, J. (1995). Earnings, book values and dividends in equity valuation. Contemporary Accounting Research, 11(2), 661–687.CrossRefGoogle Scholar
  47. Orlitzky, M. (2008). ‘Corporate social performance and financial performance: A research synthesis. In A. Crane, A. McWilliams, D. Matten, J. Moon, & D. S. Siegel (Eds.), The oxford handbook of CSR (pp. 113–134). Oxford: Oxford University Press’.Google Scholar
  48. Orlitzky, M., & Benjamin, J. D. (2001). Corporate social performance and firm risk: A meta-analytic review. Business & Society, 40(4), 369–396.CrossRefGoogle Scholar
  49. Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporal social and financial performance: A meta-analysis. Organization Studies, 24(3), 403–441.CrossRefGoogle Scholar
  50. Padgett, R. C., & Galan, J. I. (2010). The effect of R&D intensity on corporate social responsibility. Journal of Business Ethics, 93, 407–418.CrossRefGoogle Scholar
  51. Palazzo, G., & Richter, U. (2005). CSR business as usual? The case of the tobacco industry. Journal of Business Ethics, 61(4), 387–401.CrossRefGoogle Scholar
  52. Pavelin, S., & Porter, L. A. (2007). The corporate social performance content of innovation in the UK. Journal of Business Ethics, 80, 711–725.CrossRefGoogle Scholar
  53. Peloza, J. (2006). Using corporate social responsibility as insurance for financial performance. California Management Review, 48, 52–72.CrossRefGoogle Scholar
  54. Peloza, J. (2009). The challenge of measuring financial impacts from investments in corporate social performance. Journal of Management, 35(6), 1518–1541.CrossRefGoogle Scholar
  55. Preston, L. E., & O’Bannon, D. P. (1997). The corporate social-financial performance relationship: A typology and analysis. Business and Society, 36, 419–429.CrossRefGoogle Scholar
  56. Roberts, R. (1992). Determinants of corporate social responsibility disclosure: And application of stakeholder theory. Accounting, Organizations and Society, 17(6), 595–612.CrossRefGoogle Scholar
  57. Rodgers, W., & Guiral, A. (2011). Potential model misspecification bias: Partial least squares and the use of formative indicators as an opportunity for accounting researchers. The International Journal of Accounting, 46(1), 25–50.CrossRefGoogle Scholar
  58. Ruf, B. M., Muralidhar, K., Brown, R. M., Janney, J. J., & Paul, K. (2001). An empirical investigation of the relationship between change in corporate social performance and financial performance: A stakeholder theory perspective. Journal of Business Ethics, 32, 143–156.CrossRefGoogle Scholar
  59. Schlenker, B. R. (1980). Impression Management: The Self-concept, Social Identity, and Interpersonal Relations. Monterrey, CA: Brooks-Cole.Google Scholar
  60. Sharfman, M. (1996). The construct validity of the Kinder, Lydenberg & Domini social performance ratings data. Journal of Business Ethics, 15(3), 287–296.CrossRefGoogle Scholar
  61. Surroca, J., Tribo, J. A., & Waddock, S. (2010). Corporate responsibility and financial performance: The role of intangible resources. Strategic Management Journal, 31, 463–490.Google Scholar
  62. Ullmann, A. E. (1985). Data in search of a theory: a critical examination of the relationships among social performance, social disclosure and economic performance of US firms. Academy of Management Review, 10(3), 540–557.Google Scholar
  63. Waddock, S. A., & Graves, S. B. (1997). The corporate social performance–financial performance link. Strategic Management Journal, 18(4), 303–319.CrossRefGoogle Scholar
  64. Wagner, M. (2010). Corporate social performance and innovation with high social benefits: A quantitative analysis. Journal of Business Ethics, 94, 581–594.CrossRefGoogle Scholar
  65. Waldman, D. A., Siegel, D. S., & Javidan, M. (2006). Components of CEO transformational leadership and corporate social responsibility. Journal of Management Studies, 43(8), 1703–1725.CrossRefGoogle Scholar
  66. Westlund, A., Kallstrom, M., & Parmler, J. (2008). SEM-based customer satisfaction measurement: On multicollinearity and robust PLS estimation. Total Quality Management & Business Excellence, 19(7–8), 855–869.CrossRefGoogle Scholar
  67. Wilson, A., & West, C. (1981). The marketing of “unmentionables”. Harvard Business Review, 51(1), 91–102.Google Scholar
  68. Yoon, Y., Gurhan-Canli, Z., & Schwarz, N. (2006). The effect of corporate social responsibility (CSR) activities on companies with bad reputations. Journal of Consumer Psychology, 16(4), 377–390.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2012

Authors and Affiliations

  • Belen Blanco
    • 1
  • Encarna Guillamón-Saorín
    • 2
  • Andrés Guiral
    • 3
    Email author
  1. 1.Universidad de NavarraPamplonaSpain
  2. 2.Universidad Carlos III de MadridMadridSpain
  3. 3.Yonsei University School of BusinessSeoulSouth Korea

Personalised recommendations