Journal of Business Ethics

, Volume 118, Issue 2, pp 395–412 | Cite as

Corporate Social Responsibility and Its Impact on Firms’ Investment Policy, Organizational Structure, and Performance

  • Otgontsetseg Erhemjamts
  • Qian Li
  • Anand Venkateswaran


This study examines the determinants of corporate social responsibility (CSR) and its implications on firms’ investment policy, organizational strategy, and performance. First, we find that firms with better performance, higher R&D intensity, better financial health, and firms in new economy industries are more likely to engage in CSR activities, while riskier firms are less likely to do so. We also find U-shaped relation between firm size and CSR, indicating that either very small or very large firms exhibit high levels of CSR strengths and concerns. Next, we find that firms’ CSR strengths relate favorably with their investments, organizational strategy, and performance, whereas CSR concerns and firm attributes are by and large negatively related. Using a 2SLS procedure, we verify that the CSR–performance relation is robust to corrections for endogeneity through reverse causation and/or biases introduced by time varying omitted variables. Finally, we find that the CSR–firm attributes relation is strengthened when the CEO’s incentives are below the sample median, suggesting that CSR participation is especially important when monetary incentives are lower than benchmark levels.


Corporate social responsibility Firm performance Investment policy Organizational strategy 


  1. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99–120.CrossRefGoogle Scholar
  2. Berman, S. L., Wicks, A. C., Kotha, S., & Jones, T. M. (1999). Does stakeholder orientation matter? The relationship between stakeholder management models and the firm financial performance. Academy of Management Journal, 42(5), 488–506.CrossRefGoogle Scholar
  3. Bertrand, M., & Schoar, A. (2003). Managing with style: The effect of managers on firm policies. The Quarterly Journal of Economics, 118(4), 1169–1208.CrossRefGoogle Scholar
  4. Cowen, S. S., Ferreri, L. B., & Parker, L. D. (1987). The impact of corporate characteristics on social responsibility disclosure: A typology and frequency-based analysis. Accounting, Organizations and Society, 12(2), 111–122.CrossRefGoogle Scholar
  5. Dhaliwal, D. S., Li, O. Z., Tsang, A., & Yang, Y. G. (2011). Voluntary nonfinancial disclosure and the cost of equity capital: The initiation of corporate social responsibility reporting. The Accounting Review, 86(1), 59–100.CrossRefGoogle Scholar
  6. Donaldson, T., & Preston, L. (1995). The stakeholder theory of the corporation: Concepts, evidence and implications. Academy of Management Review, 20, 65–91.Google Scholar
  7. El Ghoul, S., Guedhami, O., Kwok, C., & Mishra, D. (2011). Does corporate social responsibility affect the cost of capital? Journal of Banking & Finance, 35(9), 2388–2406.CrossRefGoogle Scholar
  8. Fich, E., Garcia, D., Robinson, T., & Yore, A. (2009). Corporate philanthropy, agency problems, and shareholder wealth, Working paper.Google Scholar
  9. Freeman, R. (1984). Strategic management: A stakeholder perspective. Englewood Cliffs, NJ: Prentice-Hall.Google Scholar
  10. Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times, September 13.Google Scholar
  11. Garcia-Castro, R., Ariño, M. A., & Canela, M. A. (2010). Does social performance really lead to financial performance? Accounting for endogeneity. Journal of Business Ethics, 92(1), 107–126.CrossRefGoogle Scholar
  12. Gompers, P. A., Ishii, J. L., & Metrick, A. (2003). Corporate governance and equity prices. The Quarterly Journal of Economics, 118(1), 1007–1155.CrossRefGoogle Scholar
  13. Graham, J. R. (1996). Debt and the marginal tax rate. Journal of Financial Economics, 41(1), 41–73.CrossRefGoogle Scholar
  14. Graves, S. B., & Waddock, S. A. (1994). Institutional owners and corporate social performance. Academy of Management Journal, 37(4), 1034–1046.CrossRefGoogle Scholar
  15. Graves, S. B., & Waddock, S. A. (2000). Beyond built to last…Stakeholder relations in built to last companies. Business and Society Review, 105, 393–418.CrossRefGoogle Scholar
  16. Hart, S. L. (1995). A natural resource-based view of the firm. Academy of Management Review, 20(4), 986–1014.Google Scholar
  17. Hillman, A. J., & Keim, G. D. (2001). Shareholder value, stakeholder management, and social issues: What’s the bottom line? Strategic Management Journal, 22(2), 125–139.CrossRefGoogle Scholar
  18. Hillman, A. J., Withers, M. C., & Collins, B. J. (2009). Resource dependence theory: A review. Journal of Management, 35(6), 1404–1427.CrossRefGoogle Scholar
  19. Jensen, M. C. (2002). Value maximization, stakeholder theory, and the corporate objective function. Business Ethics Quarterly, 12(2), 235–256.CrossRefGoogle Scholar
  20. Johnson, R. A., & Greening, D. W. (1999). The effects of corporate governance and institutional ownership types on corporate social performance. Academy of Management Journal, 42(5), 564–576.CrossRefGoogle Scholar
  21. Jones, T. (1995). Instrumental stakeholder theory: A synthesis of ethics and economics. Academy of Management Review, 20, 404–437.Google Scholar
  22. Levitt, T. (1958). The dangers of social responsibility. Harvard Business Review, 36, 41–50.Google Scholar
  23. Margolis, J. D., & Walsh, J. P. (2003). Misery loves companies: Rethinking social initiatives by business. Administrative Science Quarterly, 48(2), 268–305.CrossRefGoogle Scholar
  24. McGuire, J. B., Sundgren, A., & Schneeweis, T. (1988). Corporate social responsibility and firm financial performance. Academy of Management Journal, 31(4), 854–872.CrossRefGoogle Scholar
  25. McWilliams, A., & Siegel, D. S. (2000). Corporate social responsibility and finance performance: Correlation or misspecification? Strategic Management Journal, 21, 603–609.CrossRefGoogle Scholar
  26. McWilliams, A., & Siegel, D. S. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26, 117–127.Google Scholar
  27. McWilliams, A., Siegel, D. S., & Wright, P. M. (2006). Corporate social responsibility: Strategic implications. Journal of Management Studies, 43(1), 1–18.CrossRefGoogle Scholar
  28. Moskowitz, M. (1972). Choosing socially responsible stocks. Business and Society Review, 1, 71–75.Google Scholar
  29. Murphy, K. J. (1999). Executive compensation. In Orley. Ashenfelter & David. Card (Eds.), Handbook of labor economics (Vol. 3, pp. 2485–2563). Amsterdam: North-Holland.Google Scholar
  30. Murphy, K. J. (2003). Stock-based pay in new economy firms. Journal of Accounting and Economics, 34, 129–147.CrossRefGoogle Scholar
  31. Nelling, E., & Webb, E. (2009). Corporate social responsibility and financial performance: The “virtuous circle” revisited. Review of Quantitative Finance and Accounting, 32, 197–209.CrossRefGoogle Scholar
  32. Petersen, M. A. (2009). Estimating standard errors in finance panel data sets: Comparing approaches. Review of Financial Studies, 22(1), 435–480.CrossRefGoogle Scholar
  33. Pfeffer, J., & Salancik, G. R. (1978). The external control of organizations: A resource dependence perspective. New York: Harper and Row.Google Scholar
  34. Rehbein, K., Waddock, S., & Graves, S. B. (2004). Understanding shareholder activism: Which corporations are targeted? Business & Society, 43(3), 239–267.CrossRefGoogle Scholar
  35. Russo, M. V., & Fouts, P. A. (1997). A resource-based perspective on corporate environmental performance and profitability. Academy of Management Journal, 40, 534–559.CrossRefGoogle Scholar
  36. Saville, D., & Wood, G. R. (1991). Statistical methods: The geometric approach. New York: Springer.CrossRefGoogle Scholar
  37. Siegel, D. S., & Vitaliano, D. F. (2007). An empirical analysis of the strategic use of corporate social responsibility. Journal of Economics & Management Strategy, 16(3), 773–792.CrossRefGoogle Scholar
  38. Surroca, J., Tribó, J. A., & Waddock, S. (2010). Corporate responsibility and financial performance: The role of intangible resources. Strategic Management Journal, 31(5), 463–490.Google Scholar
  39. Udayasankar, K. (2008). Corporate social responsibility and firm size. Journal of Business Ethics, 83, 167–175.CrossRefGoogle Scholar
  40. Waddock, S. A., & Graves, S. B. (1997). The corporate social performance-financial performance link. Strategic Management Journal, 18(4), 303–319.CrossRefGoogle Scholar
  41. Waddock, S. A., & Graves, S. B. (2000). Performance characteristics of social and traditional investments. Journal of Investing, 9(2), 27–38.CrossRefGoogle Scholar
  42. Wang, J., & Coffey, B. S. (1992). Board composition and corporate philanthropy. Journal of Business Ethics, 11(10), 771–778.CrossRefGoogle Scholar
  43. Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171–180.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2012

Authors and Affiliations

  • Otgontsetseg Erhemjamts
    • 1
  • Qian Li
    • 2
  • Anand Venkateswaran
    • 3
  1. 1.Bentley UniversityWalthamUSA
  2. 2.Dillard College of Business AdministrationMidwestern State UniversityWichita FallsUSA
  3. 3.College of BusinessNortheastern UniversityBostonUSA

Personalised recommendations