The Interactive Financial Effects between Corporate Social Responsibility and Irresponsibility

Abstract

Firms typically present a mixed picture of corporate social performance (CSP), with positive and negative indicators exhibited by the same firm. Thus, stakeholders’ judgements of corporate social responsibility (CSR) typically evaluate positives in the context of negatives, and vice versa. We present two alternative accounts of how stakeholders respond to such complexity, which provide differing implications for the financial effects of CSP: reciprocal dampening and rewarding uniformity. Our US panel study finds a U-shaped relationship – firms that exhibit solely positive or solely negative indicators outperform firms that exhibit both – which supports the notion that stakeholders’ judgements of CSR reward uniformity.

Keywords: Corporate social responsibility, Corporate social performance, Socially responsible investing

JEL Classification: C31, C33, M14