A Resource-based View of Corporate Social Irresponsibility: Evidence from Shareholder Value Destruction in China

51 Pages Posted: 10 Jun 2020

See all articles by Maretno A. Harjoto

Maretno A. Harjoto

Pepperdine University - Pepperdine Graziadio Business School (PGBS)

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin; Stockholm School of Economics - Mistra Financial Systems (MFS); European Commission's Technical Expert Group for Sustainable Finance

Qian Li

Cardiff Business School, Cardiff University

Date Written: September 18, 2018

Abstract

Barney (1991) states a resource can be a potential source of sustained competitive advantage if it is rare, valuable, inimitable and non-substitutable. We invert his definition to conceptualise the emerging corporate social irresponsibility (CSI) literature from the resource-based view. CSI episodes are quite rare and no sane competitor would aim to imitate or substitute them. However, the degree to which CSI episodes are impacting shareholder value is an empirical question, whose result implies if CSI can be conceptualised as a ‘resource damaging factor’. We differentiate CSI domains based on the firm’s power to substitute offended stakeholders without long-term implications (i.e., employees or suppliers) versus those where such option is not available (i.e. investors or customers or regulators). We conceptualise the impact of CSI episodes as metaphorical 3-dimensional objects and hypothesize that the negative long-term valuation impact of CSI episodes is bigger for closer proximity of the observer to the CSI episode (“breadth”), more severe CSI episodes (“depth”), or more prominent disclosure (“height”). We focus on Chinese firms with their unique shareholder split between local and foreign investors and employ RepRisk, a curated negative news radar database, to identify disclosures of CSI episodes. We find evidence in support of a significant value destruction of CSI episodes, which is amplified for severe episodes of high profile as seen by local investors. The value impact is concentrated on domains where Chinese firms have little power to substitute stakeholders potentially offended by CSI, namely the local investors, the customers, and the Chinese regulator.

Keywords: Corporate Social Irresponsibility (CSI); Corporate Social Responsibility (CSR); Event Study; Firm Performance; Resource-based Theory; Shareholder Value

JEL Classification: G14; G32; M14; N25

Suggested Citation

Harjoto, Maretno Agus and Hoepner, Andreas G. F. and Li, Qian, A Resource-based View of Corporate Social Irresponsibility: Evidence from Shareholder Value Destruction in China (September 18, 2018). Available at SSRN: https://ssrn.com/abstract=3241981 or http://dx.doi.org/10.2139/ssrn.3241981

Maretno Agus Harjoto

Pepperdine University - Pepperdine Graziadio Business School (PGBS) ( email )

Drescher Campus Suite 344
24255 Pacific Coast Highway
Malibu, CA 90263
United States
(310) 506-8542 (Phone)
(310) 506-4126 (Fax)

HOME PAGE: http://scholar.google.com/citations?hl=en&user=9-PfQi0AAAAJ

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin ( email )

Blackrock, Co. Dublin
Ireland

Stockholm School of Economics - Mistra Financial Systems (MFS) ( email )

MISUM
Box 6501, SE-113 83 Stockholm
Sweden

European Commission's Technical Expert Group for Sustainable Finance ( email )

2 Rue de Spa
Brussels, 1000
Belgium

Qian Li (Contact Author)

Cardiff Business School, Cardiff University ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

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