A Resource-based View of Corporate Social Irresponsibility: Evidence from Shareholder Value Destruction in China
51 Pages Posted: 10 Jun 2020
Date Written: September 18, 2018
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
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