Washing Away Your Sins? Corporate Social Responsibility, Corporate Social Irresponsibility, and Firm Performance

Charles Kang, Frank Germann, and Rajdeep Grewal
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Key Takeaways
Increasingly, firms engage in both CSR and CSI. Firms that engage in both CSR and CSI appear to engage in CSR to offset their past CSI. Yet, using CSR to offset past CSI does not attenuate the negative performance implications of CSI.

There appear to be two types of firms: (1) some firms engage in CSR to offset their past CSI; (2) other firms engage in CSR (and not CSI) because (we speculate) it is simply what they do.

The former firms likely see little if any positive financial returns from their CSR investments. The latter firms can expect to see significant financial returns from their CSR investments.

Article Snapshots: Executive Summaries from the Journal of Marketing​

Firms can expect to benefit financially from engaging in Corporate Social Responsibility (CSR). Yet, many firms invest in CSR to make amends for their past Corporate Social Irresponsibility (CSI), and these firms likely will not benefit financially from their CSR investments.


“All else equal, ‘doing good’ leads to ‘doing well’. However, using ‘doing good’ to offset ‘doing bad’ does not pay of financially.” 

“Increasingly, firms do both ‘good’ and ‘bad.’"


Research

The debate on how CSR relates to firm performance has yet to be resolved. Specifically, our examination of the extant CSR literature reveals the following four mechanisms: slack resources, good management, penance, and insurance. Moreover, a limitation of the literature is that it has not yet studied the four mechanisms simultaneously. Studying only one or two mechanisms at a time is likely problematic as important relationships that the unmodeled mechanisms suggest are omitted, which in turn should result in a partial picture. Hence, we investigate the four mechanisms simultaneously.

Method

We extend existing CSR related research in two important directions: (1) We developed a model based on economic theory to examine the relationships among CSR, CSI, and firm performance. Specifically, we use a structural panel vector autoregression model to account for the dynamic interplay among CSR, CSI, and firm performance. (2) We examine the four mechanism using an unbalanced panel dataset of over 4,500 firms and up to 19 years.     


 
 

Findings

In support of the good management mechanism, we find that firms that engage in CSR are likely to benefit financially from their CSR investment. Moreover, we do not find support for the slack resources or the insurance mechanism. In constrast, and in support of the penance mechanism, often firm's CSR seems to trail their CSI. However, our results also suggest that the penance mechanism is ineffective at offsetting negative performance effects due to CSI.

Implications

Our finding that, all else equal, "doing good" leads to "doing well" should be of particular interest to managers. Hopefully, this finding will encourage managers to act more conscientiously. Moreover, the general public should find it interesting that, on the one hand, companies increasingly do both "good" and "bad", and on the other hand, companies use CSR to offset past CSI. Furthermore, the general public (and managers) should find it interesting that companies do not seem to be able to "wash away their sins​" (i.e., CSI) using CSR.


Questions for the Classroom

  • Why are firms engaging in CSR?
  • How does CSR relate to firm performance?
  • Can CSR mitigate CSI's negative effect on firm performance?


Full Article
Charles Kang, Frank Germann, and Rajdeep Grewal (2016) Washing Away Your Sins? Corporate Social Responsibility, Corporate Social Irresponsibility, and Firm Performance. Journal of Marketing, 80 (2), 59-79.

Charles Kang is Visiting Assistant Professor, A.B. Freeman School of Business, Tulane University (e-mail: ckang2@tulane.edu).


Frank Germann is Assistant Professor of Marketing, Mendoza College of Business, University of Notre Dame (e-mail: fgermann@nd.edu).



Rajdeep Grewal is the Townsend Family Distinguished Professor, Kenan-Flagler Business School, University of North Carolina (e-mail: grewalr@unc.edu).


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Charles Kang, Frank Germann, and Rajdeep Grewal
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