RESEARCH ARTICLE
Impact of positive and negative corporate social responsibility on automotive firms' financial performance: A market-based asset perspective
Woon Leong Lin,
Jo Ann Ho,
Chin Lee,
Siew Imm Ng,
Woon Leong Lin
Faculty of Economics and Management, Department of Management and Marketing, Universiti Putra Malaysia, Selangor, Malaysia
Taylor's Business School, Taylor's University, Subang Jaya, Malaysia
Search for more papers by this authorCorresponding Author
Jo Ann Ho
Faculty of Economics and Management, Department of Management and Marketing, Universiti Putra Malaysia, Selangor, Malaysia
Correspondence
Jo Ann Ho, Universiti Putra Malaysia, Faculty of Economics and Management, 43400 Upm Serdang, Selangor, Malaysia.
Email: ann_hj@upm.edu.my
Search for more papers by this authorChin Lee
Faculty of Economics and Management, Department of Management and Marketing, Universiti Putra Malaysia, Selangor, Malaysia
Search for more papers by this authorSiew Imm Ng
Faculty of Economics and Management, Department of Management and Marketing, Universiti Putra Malaysia, Selangor, Malaysia
Search for more papers by this authorWoon Leong Lin,
Jo Ann Ho,
Chin Lee,
Siew Imm Ng,
Woon Leong Lin
Faculty of Economics and Management, Department of Management and Marketing, Universiti Putra Malaysia, Selangor, Malaysia
Taylor's Business School, Taylor's University, Subang Jaya, Malaysia
Search for more papers by this authorCorresponding Author
Jo Ann Ho
Faculty of Economics and Management, Department of Management and Marketing, Universiti Putra Malaysia, Selangor, Malaysia
Correspondence
Jo Ann Ho, Universiti Putra Malaysia, Faculty of Economics and Management, 43400 Upm Serdang, Selangor, Malaysia.
Email: ann_hj@upm.edu.my
Search for more papers by this authorChin Lee
Faculty of Economics and Management, Department of Management and Marketing, Universiti Putra Malaysia, Selangor, Malaysia
Search for more papers by this authorSiew Imm Ng
Faculty of Economics and Management, Department of Management and Marketing, Universiti Putra Malaysia, Selangor, Malaysia
Search for more papers by this authorAbstract
Prevailing studies on the economic implication of corporate social responsibility (CSR) for businesses has mainly stressed on the positive facet of corporate social responsibility (PCSR), failing to comprehend that firms also espouse behaviors and initiatives which can be characterized as negative corporate social responsibility (NCSR). Additionally, limited researches have considered how both PCSR and NCSR influence corporate financial performance (CFP). In consideration of this view, we present a framework that connects both PCSR as well as NCSR to CFP. We also analyzed the moderating role of the firm's market-based asset. Using 924 observations from 2011 to 2017 and a combined secondary data of 132 global automotive firms from CSRHub and Thomson Reuters Datastream, we examined how increases in either PCSR or NCSR relate to CFP via dynamic panel data system Generalise Moment of Method estimates. Our results demonstrate that PCSR improves CFP while and NCSR is detrimental to a firm's financial performance. Correspondingly, the results indicate that market-based asset moderates the relationship between PCSR and NCSR. Firms that possess higher market-based assets tend to enjoy higher profitability with PCSR as they are in a better position. However, it has been observed that market-based assets tend to weaken the relationship between CFP and NCSR.
REFERENCES
- Albertini, E. (2013). Does environmental management improve financial performance? A meta-analytical review. Organization & Environment, 26(4), 431–457.
- Alniacik, U., Alniacik, E., & Genc, N. (2011). How corporate social responsibility information influences stakeholders' intentions. Corporate Social Responsibility and Environmental Management, 18(4), 234–245.
- Aras, G., Aybars, A., & Kutlu, O. (2010). Managing corporate performance. International Journal of Productivity and Performance Management, 59(3), 229–254.
10.1108/17410401011023573 Google Scholar
- Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277–297.
- Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51.
- Armstrong, S. J. (1997). Social irresponsibility in management. Journal of Business Research, 5, 185–213.
- Aupperle, K. E., Carroll, A. B., & Hatfield, J. D. (1985). An empirical examination of the relationship between corporate social responsibility and profitability. Academy of Management Journal, 28(2), 446–463.
- Bai, X., & Chang, J. (2015). Corporate social responsibility and firm performance: The mediating role of marketing competence and the moderating role of market environment. Asia Pacific Journal of Management, 32(2), 505–530.
- Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120.
- Baron, D. P., Harjoto, M. A., & Jo, H. (2011). The economics and politics of corporate social performance. Business and Politics, 13(2), 1–46.
10.2202/1469-3569.1374 Google Scholar
- Baumeister, R. F., Bratslavsky, E., Finkenauer, C., & Vohs, K. D. (2001). Bad is stronger than good. Review of General Psychology, 5(4), 323–370.
10.1037/1089-2680.5.4.323 Google Scholar
- Berry, L. L. (2000). Cultivating service brand equity. Journal of the Academy of Marketing Science, 28(1), 128–137.
- Bhattacharya, C. B., & Sen, S. (2004). Doing better at doing good: When, why, and how consumers respond to corporate social initiatives. California Management Review, 47(1), 9–24.
- Bird, R., Hall, A. D., Momentè, F., & Reggiani, F. (2007). What corporate social responsibility activities are valued by the market? Journal of Business Ethics, 76(2), 189–206.
- Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143.
- Boulouta, I., & Pitelis, C. N. (2014). Who needs CSR? The impact of corporate social responsibility on national competitiveness. Journal of Business Ethics, 119(3), 349–364.
- Bowen, H., (1953). Social Responsibilities of the Businessman. New York: Harper & Row.
- Brammer, S. J., & Pavelin, S. (2006). Corporate reputation and social performance: The importance of fit. Journal of Management Studies, 43(3), 435–455.
- Carroll, A. B. (1979). A three-dimensional conceptual model of corporate performance. Academy of Management Review, 4(4), 497–505.
10.2307/257850 Google Scholar
- Carroll, A. B., & Shabana, K. M. (2010). The business case for corporate social responsibility: A review of concepts, research and practice. International Journal of Management Reviews, 12(1), 85–105.
- Clarkson, M. E. (1995). A stakeholder framework for analyzing and evaluating corporate social performance. Academy of Management Review, 20(1), 92–117.
- Clement-Jones, T. (2005). Bottom line issue or public relations exercise. Investing in Corporate Social Responsibility: A Guide to Best Practice, Business Planning and the UK's Leading Companies (Kogan Page, London), 5–13.
- Cormier, D., & Magnan, M. (2007). The revisited contribution of environmental reporting to investors' valuation of a firm's earnings: An international perspective. Ecological Economics, 62(3–4), 613–626.
- Cornett, M. M., Erhemjamts, O., & Tehranian, H. (2016). Greed or good deeds: An examination of the relation between corporate social responsibility and the financial performance of US commercial banks around the financial crisis. Journal of Banking & Finance, 70, 137–159.
- Den Hond, F., Rehbein, K. A., de Bakker, F. G., & Lankveld, H. K. V. (2014). Playing on two chessboards: Reputation effects between corporate social responsibility (CSR) and corporate political activity (CPA). Journal of Management Studies, 51(5), 790–813.
- Dixon-Fowler, H. R., Slater, D. J., Johnson, J. L., Ellstrand, A. E., & Romi, A. M. (2013). Beyond “does it pay to be green?” Ameta-analysis of moderators of the CEP–CFP relationship. Journal of Business Ethics, 112(2), 353–366.
- Falck, O., & Heblich, S. (2007). Corporate social responsibility: Doing well by doing good. Business Horizons, 50(3), 247–254.
10.1016/j.bushor.2006.12.002 Google Scholar
- Fang, E., Palmatier, R. W., & Grewal, R. (2011). Effects of customer and innovation asset configuration strategies on firm performance. Journal of Marketing Research, 48(3), 587–602.
- Flannery, M. J., & Hankins, K. W. (2013). Estimating dynamic panel models in corporate finance. Journal of Corporate Finance, 19, 1–19.
- Fombrun, C. J. (1996). Reputation: Realising value from the corporate image. Boston, Massachusetts: Harvard Business School Press.
- Freeman, R. (1984). Strategic management. New York: A Stakeholder Approach.
- Good Jobs First. (2019). Violation Tracker Industry Summary Page. Washington, USA: Good Jobs First. Retrieve from https://violationtracker.goodjobsfirst.org/industry/motor%20vehicles.
- Griffin, J. J., & Mahon, J. F. (1997). The corporate social performance and corporate financial performance debate: Twenty-five years of incomparable research. Business & Society, 36(1), 5–31.
10.1177/000765039703600102 Google Scholar
- Heinkel, R., Kraus, A., & Zechner, J. (2001). The effect of green investment on corporate behavior. Journal of Financial and Quantitative Analysis, 36(4), 431–449.
- Hopkins, M. (2005). Measurement of corporate social responsibility. International Journal of Management and Decision Making, 6(3-4), 213–231.
10.1504/IJMDM.2005.006549 Google Scholar
- Jayachandran, S., Sharma, S., Kaufman, P., & Raman, P. (2005). The role of relational information processes and technology use in customer relationship management. Journal of Marketing, 69(4), 177–192.
- Jensen, M. C., & Meckling, W. H. (1976). Agency Costs and the Theory of the Firm. Journal of Financial Economics, 3(4), 305–360.
- Jo, H., Kim, H., & Park, K. (2015). Corporate environmental responsibility and firm performance in the financial services sector. Journal of Business Ethics, 131(2), 257–284.
- Jones, B., Bowd, R., & Tench, R. (2009). Corporate irresponsibility and corporate social responsibility: competing realities. Social Responsibility Journal, 5(3), 300–310.
10.1108/17471110910977249 Google Scholar
- Kang, K. H., Lee, S., & Huh, C. (2010). Impacts of positive and negative corporate social responsibility activities on company performance in the hospitality industry. International Journal of Hospitality Management, 29(1), 72–82.
- Kim, K. H., Kim, M., & Qian, C. (2018). Effects of corporate social responsibility on corporate financial performance: A competitive-action perspective. Journal of Management, 44(3), 1097–1118.
- Klein, J., & Dawar, N. (2004). Corporate social responsibility and consumers' attributions and brand evaluations in a product–harm crisis. International Journal of Research in Marketing, 21(3), 203–217.
- Kotchen, M., & Moon, J. J. (2012). Corporate social responsibility for irresponsibility. The BE Journal of Economic Analysis & Policy, 12(1), 1–23.
- Kotler, P., & Lee, N. (2005). Corporate social responsibility. Doing the most good for your company and your cause. New Jersey, EUA: John Wiley & Sons.
- Lai, C. S., Chiu, C. J., Yang, C. F., & Pai, D. C. (2010). The effects of corporate social responsibility on brand performance: The mediating effect of industrial brand equity and corporate reputation. Journal of Business Ethics, 95(3), 457–469.
- Lange, D., & Washburn, N. T. (2012). Understanding attributions of corporate social irresponsibility. Academy of Management Review, 37(2), 300–326.
- Lee, S., Seo, K., & Sharma, A. (2013). Corporate social responsibility and firm performance in the airline industry: The moderating role of oil prices. Tourism Management, 38, 20–30.
- Lim, S. C., & Lusch, R. F. (2011). Sales margin and margin capitalization rates: Linking marketing activities to shareholder value. Journal of the Academy of Marketing Science, 39(5), 647–663.
- Lin-Hi, N., & Müller, K. (2013). The CSR bottomline: Preventing corporate social irresponsibility. Journal of Business Research, 66(10), 1928–1936.
- Lin, W., Ho, J., & Sambasivan, M. (2019). Impact of corporate political activity on the relationship between corporate social responsibility and financial performance: A dynamic panel data approach. Sustainability, 11(1), 60.
- Lin, W. L., Law, S. H., Ho, J. A., & Sambasivan, M. (2019). The causality direction of the corporate social responsibility–corporate financial performance nexus: Application of panel vector autoregression approach. The North American Journal of Economics and Finance, 48, 401–418.
- Lioui, A., & Sharma, Z. (2012). Environmental corporate social responsibility and financial performance: Disentangling direct and indirect effects. Ecological Economics, 78, 100–111.
- Luo, X., & Bhattacharya, C. B. (2009). The debate over doing good: Corporate social performance, strategic marketing levers, and firm-idiosyncratic risk. Journal of Marketing, 73(6), 198–213.
- Luo, X., Wieseke, J., & Homburg, C. (2012). Incentivizing CEOs to build customer-and employee-firm relations for higher customer satisfaction and firm value. Journal of the Academy of Marketing Science, 40(6), 745–758.
- Mackey, A., Mackey, T. B., & Barney, J. B. (2007). Corporate social responsibility and firm performance: Investor preferences and corporate strategies. Academy of Management Review, 32(3), 817–835.
- Margolis, J. D., & Walsh, J. P. (2003). Misery loves companies: Rethinking social initiatives by business. Administrative Science Quarterly, 48(2), 268–305.
- Mattingly, J. E., & Berman, S. L. (2006). Measurement of corporate social action: Discovering taxonomy in the Kinder Lydenburg Domini ratings data. Business & Society, 45(1), 20–46.
10.1177/0007650305281939 Google Scholar
- McGuire, J. B., Sundgren, A., & Schneeweis, T. (1988). Corporate social responsibility and firm financial performance. Academy of Management Journal, 31(4), 854–872.
- McWilliams, A., & Siegel, D. (2000). Corporate social responsibility and financial performance: Correlation or misspecification? Strategic Management Journal, 21(5), 603–609.
- Mishra, S., & Suar, D. (2010). Does corporate social responsibility influence firm performance of Indian companies? Journal of Business Ethics, 95(4), 571–601.
- Mishra, S., & Modi, S. B. (2013). Positive and negative corporate social responsibility, financial leverage, and idiosyncratic risk. Journal of Business Ethics, 117(2), 431–448.
- Mittal, B., & Baker, J. (2002). Advertising strategies for hospitality services. Cornell Hotel and Restaurant Administration Quarterly, 43(2), 51–63.
10.1016/S0010-8804(02)80031-3 Google Scholar
- Morck, R., Shleifer, A., & Vishny, R. W. (1988). Management ownership and market valuation: An empirical analysis. Journal of Financial Economics, 20, 293–315.
- Morgan, N. A., Vorhies, D. W., & Mason, C. H. (2009). Market orientation, marketing capabilities, and firm performance. Strategic Management Journal, 30(8), 909–920.
- Muller, A., & Kräussl, R. (2011). Doing good deeds in times of need: A strategic perspective on corporate disaster donations. Strategic Management Journal, 32(9), 911–929.
- Nelson, P. (1974). Advertising as information. Journal of Political Economy, 82(4), 729–754.
- Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica: Journal of the Econometric Society, 1417–1426.
- O'brien, J. P. (2003). The capital structure implications of pursuing a strategy of innovation. Strategic Management Journal, 24(5), 415–431.
- Oikonomou, I., Brooks, C., & Pavelin, S. (2012). The impact of corporate social performance on financial risk and utility: A longitudinal analysis. Financial Management, 41(2), 483–515.
- Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization Studies, 24(3), 403–441.
- Orlitzky, M. (2005). Payoffs to social and environmental performance. The Journal of Investing, 14(3), 48–52.
10.3905/joi.2005.580548 Google Scholar
- Park, S. Y., & Lee, S. (2009). Financial rewards for social responsibility: A mixed picture for restaurant companies. Cornell Hospitality Quarterly, 50(2), 168–179.
- Porter, M. E., & Kramer, M. R. (2006). The link between competitive advantage and corporate social responsibility. Harvard Business Review, 84(12), 78–92.
- Popa, M. & Salanta, I. (2014). An empirical approach on the sme versus big companies csr investment arguments. Managerial Challenges of the Contemporary Society. Proceedings, 7(2), 99.
- Richard, P. J., Devinney, T. M., Yip, G. S., & Johnson, G. (2009). Measuring organizational performance: Towards methodological best practice. Journal of Management, 35(3), 718–804.
- Roodman, D. (2009). How to do xtabond2: An introduction to difference and system GMM in Stata. The Stata Journal, 9(1), 86–136.
- Russo, M. V., & Fouts, P. A. (1997). Aresource-based perspective on corporate environmental performance and profitability. Academy of Management Journal, 40(3), 534–559.
- Rowley, T., & Berman, S. (2000). A brand new brand of corporate social performance. Business & Society, 39(4), 397–418.
10.1177/000765030003900404 Google Scholar
- Schuler, D. A., & Cording, M. (2006). A corporate social performance–corporate financial performance behavioral model for consumers. Academy of Management Review, 31(3), 540–558.
- Schwartz, M. S., & Carroll, A. B. (2003). Corporate social responsibility: A three-domain approach. Business Ethics Quarterly, 13(4), 503–530.
- Sen, S., & Bhattacharya, C. B. (2001). Does doing good always lead to doing better? Consumer reactions to corporate social responsibility. Journal of Marketing Research, 38(2), 225–243.
- Simerly, R. L., & Li, M. (2000). Environmental dynamism, capital structure and performance: A theoretical integration and an empirical test. Strategic Management Journal, 21(1), 31–49.
- Srivastava, R. K., Shervani, T. A., & Fahey, L. (1998). Market-based assets and shareholder value: A framework for analysis. Journal of Marketing, 62(1), 2–18.
- Srivastava, R. K., Fahey, L., & Christensen, H. K. (2001). The resource-based view and marketing: The role of market-based assets in gaining competitive advantage. Journal of Management, 27(6), 777–802.
- 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.
- The Local (2018). Despite emissions scandal, Volkswagen clinches record sales. Stockholm, Sweden: The Local Europe AB. Retrieved from https://www.thelocal.de/20180117/despite-emissions-scandal-volkswagen-clinches-record-sales.
- Van de Ven, V., & Drazin, R. (1985). The concept of fit in contingency theory. In B. Staw & L. Cummings (Eds.), Research in organizational behavior. Greenwich, CT: JAI Press. (Vol. 7, pp. 333–365).
- Vicianová, J. (2011). Corporate social responsibility in the automobile industry in Slovak Republic. Studia Universitatis Vasile Goldiş, Arad-Seria Ştiinţe Economice, 21(1), 192–201.
- Waddock, S. A., & Graves, S. B. (1997). The corporate social performance–financial performance link. Strategic Management Journal, 18(4), 303–319.
- Waddock, S. (2004). Parallel universes: Companies, academics, and the progress of corporate citizenship. Business and Society Review, 109(1), 5–42.
10.1111/j.0045-3609.2004.00002.x Google Scholar
- Werbel, J. D., & Wortman, M. S. (2000). Strategic philanthropy: Responding to negative portrayals of corporate social responsibility. Corporate Reputation Review, 3(2), 124–136.
10.1057/palgrave.crr.1540107 Google Scholar
- Welford, R., Chan, C., & Man, M. (2008). Priorities for corporate social responsibility: a survey of businesses and their stakeholders. Corporate Social Responsibility and Environmental Management, 15(1), 52–62.
- Wintoki, M. B., Linck, J. S., & Netter, J. M. (2012). Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics, 105(3), 581–606.
- Wood, D. J. (1991). Corporate social performance revisited. Academy of Management Review, 16(4), 691–718.
- Yuen, K. F., Thai, V. V., Wong, Y. D., & Wang, X. (2018). Interaction impacts of corporate social responsibility and service quality on shipping firms' performance. Transportation Research Part A: Policy and Practice, 113, 397–409.
- Zhu, Q., & Zhang, Q. (2015). Evaluating practices and drivers of corporate social responsibility: The Chinese context. Journal of Cleaner Production, 100, 315–324.
