Mind the Gap: The Interplay Between External and Internal Actions in the Case of Corporate Social Responsibility

Abstract

We explore the effect of the interplay between a firm’s external and internal actions on performance in the context of corporate social responsibility (CSR). Drawing from the neo-institutional theory, we argue that external and internal CSR actions jointly contribute to the accumulation of intangible firm resources and therefore are associated with better performance. Importantly, though, we theorize that a wider gap between external and internal actions — reflecting a disconnect between “talk” and “action” by firms — negatively affects performance. Empirically, we use the market-value equation and a sample comprising 1,971 firms in 33 countries from 2002 to 2008. We find support for our hypotheses in the main analyses and robustness tests addressing potential endogeneity. We discuss implications for future research and practice.

Keywords: corporate social responsibility (CSR), firm performance, legitimacy, internal and external actions, market-value equation

JEL Classification: M10, M14