Seeking Legitimacy Through CSR: Evidence from Controversial Industries

56 Pages Posted: 8 Apr 2015

See all articles by Hoje Jo

Hoje Jo

Santa Clara University

Hakkon Kim

Southwest Jiaotong University

Kwangwoo Park

KAIST (Korea Advanced Institute of Science and Technology) - College of Business

Date Written: April 8, 2015

Abstract

Controversial industry sectors, such as alcohol, gambling, tobacco, and firearms, have suffered organizational legitimacy problems for a long period of time around the world. This paper examines whether corporate social responsibility (CSR) activities reduce the level of risk for firms in controversial industry sectors in an attempt to seek organizational legitimacy. We argue that managers in controversial industries are motivated to actively engage in risk management to combat negative publicity and gain organizational legitimacy. Using data covering 32 countries, this study finds that both the systematic and total risk for firms in controversial industry sectors are generally higher than those for firms in conventional industry sectors due to their harmful image. We then show that controversial industry firms’ engagement in CSR initiatives and policies has a substantial risk-decreasing effect, and that might increase the probability of obtaining and maintaining the social license to operate. The documented effect of CSR on firm risk, however, is more pronounced for firms in Europe and North America than in the Asia-Pacific region, suggesting differential CSR-risk association in different region. These results are significant and robust even after potential endogeneity problems are mitigated. We interpret that our results are supportive of the “harmful image”, “social license to operate” and “differential recognition” explanations.

Keywords: Corporate social responsibility; Sinful industry; Controversial industry; Risk management; Social license to operate

Suggested Citation

Jo, Hoje and Kim, Hakkon and Park, Kwangwoo, Seeking Legitimacy Through CSR: Evidence from Controversial Industries (April 8, 2015). Asian Finance Association (AsianFA) 2015 Conference Paper. Available at SSRN: https://ssrn.com/abstract=2591910 or http://dx.doi.org/10.2139/ssrn.2591910

Hoje Jo (Contact Author)

Santa Clara University ( email )

Santa Clara, CA 95053
United States
408-224-8890 (Phone)
408-554-4029 (Fax)

Hakkon Kim

Southwest Jiaotong University ( email )

No. 111, Sec. North 1, Er-Huan Rd.
Chengdu
Chengdu, Sichuan 610031
China

Kwangwoo Park

KAIST (Korea Advanced Institute of Science and Technology) - College of Business ( email )

85 Hoegiro
Seoul 02455
Korea, Republic of (South Korea)
82-2-958-3540 (Phone)
82-2-958-3604 (Fax)

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