This study investigates the effects on organization's financial performances of, first, the extent to which the organizations are involved in controversial business activities, and second, their level of social performance. These companies can be considered non-socially responsible given the harmful nature of the activities they are involved in. Managers of these companies may still have incentives to pursue socially responsible actions if they believe that engaging on those actions will help them to achieve legitimacy and improve investors' perception about them. We develop a comprehensive methodology to investigate these corporate social performance (CSP)-related effects in a complex but specific setting. To this end, we analyze a sample of 202 US firms for the period 2005-2008 using a novel method in this area: partial least squares. Our results indicate that, contrary to the general findings in prior literature, companies involved in controversial business activities which engage in CSP do not directly reduce the negative perception that stakeholders have about them. Instead, we found evidence of a positive mediation effect of CSP on financial market-based performance through innovation.
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Acknowledgments This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government (NRF-2012-S1A3A2-2012S1A3A2033412). Encarna Guill-amon-Saorin acknowledges financial contribution from the Spanish Ministry of Science and Innovation (ECO2010-19314) and Comunidad Autonoma de Madrid (SEJ2008-00059-003/SEJ2011-00088-001). Belen Blanco acknowledges financial assistance from the Spanish Ministry of Innovation and Science (ECO2010-19314, ECO2008-06238-C02-01/ECON, SEJ2007-67582-C02-02/ECON, ECO2009-10796 and Consolider Grant #2006/04046/002). Andrés Guiral acknowledges financial contribution from the Spanish Ministry of Innovation and Science (research projects SEJ2004-00791ECON, SEJ2007-62215/ECON/FEDER, SEJ 2006-14021, ECO2010-17463 ECON-FEDER).
All Science Journal Classification (ASJC) codes
- Business and International Management
- Business, Management and Accounting(all)
- Arts and Humanities (miscellaneous)
- Economics and Econometrics