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Can corporate social responsibility mitigate the liability of newness? Evidence from China

Abstract

This paper examines whether engagement in corporate social responsibility (CSR) activities mitigates the liability of newness (LoN) faced with new ventures and thus contributes to their financial performance. We theorize that investments in CSR are especially beneficial for young firms confronted with this liability. Undertaking CSR activities can serve as a balanced solution to both the internal and external contingencies associated with LoN without incurring considerable costs and thereby lead to the better performance of new ventures. In addition, we further investigate the boundary conditions of CSR in mitigating LoN and identify family ownership and firm age as two important determinants of the worth of CSR engagement. CSR is expected to create more value for family-owned or nascent new ventures. Taking Chinese private firms as our sample, we find supportive empirical evidence.

Plain English Summary

A critical challenge haunting new ventures is the liability of newness (LoN), and new ventures are believed to have quite limited strategic discretion to overcome this liability due to their heightened resource constraints. Focusing on this topic, we examine the feasibility of corporate social responsibility (CSR) as a strategy for new ventures to cope with LoN. Long considered to demand considerable resource commitment, CSR is implicitly assumed to be unavailable to this group of firms. However, by revisiting the affordability of CSR activities and exploring CSR-related benefits for new ventures, we discover that CSR engagement serves as a useful strategy to mitigate LoN. Moreover, family-owned or nascent new ventures in particular are highly advised to recognize the strategic worth of CSR efforts. If new ventures aim to deal with this liability, they should consider incorporating certain strategies, such as CSR engagement, which is regarded as available mostly to established companies, into their tool kits.

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Data availability

Data are available on request after acceptance.

Code availability

Not applicable.

Notes

  1. 1.

    Embroker is the first digital business insurance provider, and the relevant online report it issued can be found at https://www.embroker.com/blog/business-ethics-and-social-responsibility

  2. 2.

    The detailed information can be found at https://www.inc.com/frederic-kerrest/4-ways-startups-can-kick-off-a-social-impact-program.html.

  3. 3.

    Pledge 1% is a global movement that inspires companies to pledge one percent of equity, profit, product, and/or employee time for their communities. More details can be found at https://pledge1percent.org/

  4. 4.

    The surveys were conducted by the All China Industry and Commerce Federation, the China Society of Private Economy at the Chinese Academy of Social Sciences, and the United Front Work Department of the Central Committee of the Communist Party of China. More details are available at http://ssm.cssn.cn/sjzy/201609/t20160914_3202846.shtml

  5. 5.

    The Congress and the Conference are two key bodies of Chinese political structure. The detailed descriptions of China’s political system are shown in Jia (2014).

  6. 6.

    The only exception, the score for Tibet in 2013, is -0.3.

  7. 7.

    The results of the tests are as follows. Underidentification: the Kleibergen-Paap rk LM statistic (37.11) rejects the null (p < 0.01); Weak identification: the Cragg-Donald Wald F-statistic is 18.68 for the instrumental variables, which exceeds the Stock and Yogo (2002) critical value for 10% maximal IV size; Overidentification: Hansen J statistic is 0.41 (p = 0.5233).

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Funding

This study was financially supported by the National Natural Science Foundation of China (Grant Number: 72091310; 71802039).

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Correspondence to Yan Zuo.

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Zuo, Y., Jiang, S. & Wei, J. Can corporate social responsibility mitigate the liability of newness? Evidence from China. Small Bus Econ (2021). https://doi.org/10.1007/s11187-021-00551-z

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Keywords

  • Liability of newness
  • Corporate social responsibility
  • New ventures
  • China

JEL classifications

  • M13
  • M14
  • C12
  • L26