The Foundations of Corporate Social Responsibility

TILEC Discussion Paper No. 2013-023

CentER Discussion Paper Series No. 2013-071

51 Pages Posted: 23 Dec 2013 Last revised: 27 Mar 2014

See all articles by Hao Liang

Hao Liang

Singapore Management University - Lee Kong Chian School of Business

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Multiple version iconThere are 3 versions of this paper

Date Written: December 1, 2013

Abstract

We investigate the roles of legal origins and political institutions – believed to be the fundamental determinants of economic outcomes – in corporate social responsibility (CSR). We argue that CSR is an essential path to economic sustainability, and document strong correlations between country-level sustainability ratings and various extensive firm-level CSR ratings with global coverage. We contrast the different views on how legal origins and political institutions affect corporations’ tradeoff between shareholder and stakeholder rights. Our empirical evidence suggest that: (a) Legal origins are more fundamental sources of CSR adoption and performance than firms’ financial and operational performance; (b) Among different legal origins, the English common law – widely believed to be mostly shareholder-oriented – fosters CSR the least, (c) Within the civil law countries, firms of countries with German legal origin outperform their French counterparts in terms of ecological and environmental policy, but the French legal origin firms outperform German legal origin companies in social issues and labor relations. Companies under the Scandinavian legal origin score highest on CSR (and all its subfields); (d) Political institutions – democratic rules and constraints to political executives – are not preconditions for CSR and sustainability, and sometimes even hinder CSR implementation. Our results are robust after controlling for corporate governance, culture, firm-level financial performance and constraints, and different indices of political institutions.

Keywords: Corporate social responsibility, sustainability, legal origins, political institutions

JEL Classification: G30, K22 , M14, O10, O57

Suggested Citation

Liang, Hao and Renneboog, Luc, The Foundations of Corporate Social Responsibility (December 1, 2013). CentER Discussion Paper Series No. 2013-071. Available at SSRN: https://ssrn.com/abstract=2371103 or http://dx.doi.org/10.2139/ssrn.2371103

Hao Liang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

HOME PAGE: http://business.smu.edu.sg/faculty/profile/130396/LIANG-Hao

Luc Renneboog

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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