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The Heterogeneous Impact of Corporate Social Responsibility Activities That Target Different Stakeholders

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Abstract

We aggregate different dimensions of corporate social responsibility (CSR) activities following the stakeholder framework proposed in Clarkson (Acad Manag Rev 20(1), 92–117, 1995) and present consistent evidence that CSR strengths targeting different stakeholders have their unique impact on firm risk and financial performance. Institutional CSR activities that target secondary stakeholders are negatively associated with firm risk, measured by total risk and systematic risk. Technical CSR that target primary stakeholders are positively associated with firm financial performance, measured by Tobin’s Q, ROA, and cash flow returns. Our results, based on a sample of S&P 500 component firms over the period of 1995–2009, are consistent with the risk management view of “altruistic” CSR activities and with the stakeholder salience theory. We also show that the impact of CSR activities on risk varies with the ethical climate, as proved in our subsample analyses on pre- and post-Sarbanes–Oxley periods. Our empirical analyses mitigate possible omitted variables and endogeneity concerns that are often overlooked in previous research. Our findings are robust to alternative CSR measures, to alternative risk and performance measures, and to alternative estimation methods.

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Notes

  1. “In the Internet era, even a 64-year-old retired math teacher can become a threat to a large company.” Wall Street Journal (C1, Feb 19, 2013).

  2. Financial (SIC 6000-6999) and regulated utility firms (SIC 4900-4999) are not included in our sample.

  3. KLD used ticker as identifier for the firms it covered prior to 1995 and switched to CUSIP as firm identifiers since 1995. To minimize the possibility of misidentified firms when combining data with Compustat, which uses CUSIP as firm identifiers, we work with data starting from 1995.

  4. Godfrey et al. (2009) include corporate governance dimension for TCSR as well. We construct an alternative measure for TCSR strengths and concerns following their approach and find qualitatively the same results, which are available upon request.

  5. In unreported results, we show that our results on the relation of ICSR/TCSR with risk and performance still hold in a smaller sample when firms with missing R&D information are excluded. Results are available upon request.

  6. We lose a number of observations due to the lagging. The sample size for regressions in Tables 3 and 4 drops to 4,599 firm-year observations.

  7. ROA is included as independent variables when dependent variables are ROA_E or EBITDA/TA. Q is not included as independent variables when dependent variable is Tobin’s Q.

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Acknowledgments

We would like to thank Gary Monroe (Section Editor) and an anonymous referee for comments and suggestions that greatly improved the paper’s quality. Ying Li would also like to thank Sundar Balakrishnan, Paul Collins, Steve Holland,  Kevin Laverty, and Sandeep Krishnamurthy for helpful discussions and comments.

Author information

Authors and Affiliations

  1. School of Business, University of South Florida Sarasota-Manatee, Sarasota, FL, 34243, USA

    Kiyoung Chang

  2. Department of Economics and Finance, College of Business Administration, University of New Orleans, New Orleans, LA, 70148, USA

    Incheol Kim

  3. School of Business, University of Washington, Bothell, WA, 98011, USA

    Ying Li

Authors
  1. Kiyoung Chang
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  2. Incheol Kim
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  3. Ying Li
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Corresponding author

Correspondence to Ying Li.

Appendix: Definitions of Variables

Appendix: Definitions of Variables

RelRetVol

12 month stock volatility t /12 month CRSP value weighted index volatility t

Size-Adjusted RelRetVol

12 month stock volatility t /12 month CRSP size quintile portfolio volatility t

RelRetVol2

24 month stock volatility t,t+1/24 month CRSP value weighted index volatility t,t+1

Size-Adjusted RelRetVol2

24 month stock volatility t,t+1/24 month CRSP size quintile portfolio volatility t,t+1

Beta

Beta is measured using the previous 2 years daily data

CSRstrength

A sum of the CSR strengths across community, diversity, environment, employee relation, and product quality [COMstrength + DIVstrength + ENVstrength + EMPstrength + PROstrength]

Size-Adjusted CSRstrength

CSR strengths adjusted by the mean value of CSR strength score in the size portfolio; size portfolio is determined by quintile of total assets

CSRconcern

A sum of the CSR concerns across community, diversity, environment, employee relation, and product quality [COMconcern + DIVconcern + ENVconcern + EMPconcern + PROconcern]

Size-Adjusted CSRconcern

CSR concerns adjusted by the mean value of CSR concern score in the size portfolio; size portfolio is determined by quintile of total assets

NetCSRstrength

CSRstrength − CSRconcern

ICSRstrength

ICSR strengths [COMstrength + DIVstrength]

Alt ICSRstrength

Alternative ICSR strengths [COMstrength + DIVstrength + ENVstrength]

Size-Adjusted ICSRstrength

ICSR strengths adjusted by the mean value of the ICSR strength score in the size portfolio; size portfolio is determined by quintile of total assets

Alt Size-Adjusted

Alternative size-adjusted ICSRstrength

ICSRconcern

ICSR concerns [COMconcern + DIVconcern]

Size-Adjusted ICSRconcern

ICSR concerns adjusted by the mean value of ICSR concern score in the size portfolio; size portfolio is determined by quintile of total assets

NetICSRstrength

ICSRstrength—ICSRconcern

TCSRstrength

TCSR strengths [EMPstrength + PROstrength]

Alt TCSRstrength

Alternative TCSR strengths [EMPstrength + PROstrength + CGOVstrength]

Size-Adjusted TCSRstrength

TCSR strengths adjusted by the mean value of TCSR strength score in the size portfolio; size portfolio is determined by quintile of total assets

Alt Size-Adjusted TCSRstrength

Alternative Size-adjusted TCSRstrength

TCSRconcern

TCSR concerns [EMPconcern + PROconcern + CGOVconcern]

Size-Adjusted TCSRconcern

TCSR concerns adjusted by the mean value of TCSR concern score in the size portfolio; size portfolio is determined by quintile of total assets

NetTCSRstrength

TCSRstrength—TCSRconcern

HighVol

If in volatile periods (2000–2002 and 2007–2009), takes 1, else 0.

Log (assets)

Firm size measured by book value of assets at fiscal year t [AT]

Leverage

Debt to assets ratio [(DLC + DLTT)/AT]

ROA

Net income divided by assets [NI/AT]

ROA_E

EBIT divided by assets [EBIT/AT]

Cash flow return

EBITDA divided by assets [BITDA/AT]

Q

Tobin’s Q, measured by market value of assets divided by book value of assets [(PRCC_F*CSHO + AT − CEQ)/AT)]

HighQ

If size-adjusted Q > median(Q), takes 1, else 0.

Size-Adjusted ICSRstrength by HighQ

Size-Adjusted ICSRstrength*HighQ

Size-Adjusted TCSRstrength by HighQ

Size-Adjusted TCSRstrength*HighQ

Size-Adjusted ICSRstrength by HighVol

Size-Adjusted ICSRstrength*HighVol

Size-Adjusted TCSRstrength_HighVol

Size-Adjusted TCSRstrength*HighVol

PPE/assets

Property, plant & equipment divided by assets [PPENT/AT]

R&D

R&D expense [XRD/AT]

Firm age

Fiscal year minus the first year that the firm is reported in Compustat

State mean NetICSRstrength

Annual NetICSRstrength score average located in the same state

State mean NetTCSRstrength

Annual NetTCSRstrength score average located in the same state

Industry mean NetICSRstrength

Mean NetICSRstrength scores of firms in the same three-digit SIC codes

Industry mean NetTCSRstrength

Mean NetTCSRstrength scores of firms in the same three-digit SIC codes

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Chang, K., Kim, I. & Li, Y. The Heterogeneous Impact of Corporate Social Responsibility Activities That Target Different Stakeholders. J Bus Ethics 125, 211–234 (2014). https://doi.org/10.1007/s10551-013-1895-8

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