National Culture and the Value Implications of Corporate Social Responsibility: A Channel Analysis
78 Pages Posted: 8 Oct 2018 Last revised: 7 Jul 2020
Date Written: July 3, 2020
We examine why corporate social responsibility (CSR) practices vary across countries and firms, and evaluate the value implications. We propose that the national cultural dimension of individualism is a key determinant of cross-country differences in firm-level CSR practices. Moreover, we identify country- and firm-level channels linking individualism, firms’ CSR practices, and firm value. Using a sample of 30,399 firm-year observations representing 4,279 firms from 49 countries over the 2003–2015 period and applying hierarchical linear modeling, we find that individualism is positively associated with firm-level CSR practices. We show that three country-level channels—freedom of the press, protection of equal rights, and income inequality—and three firm-level channels—managerial discretion, board diversity, and corporate transparency—link individualism to CSR. We find a positive association between firm-level CSR practices and firm value, with three firm-level channels—cash flows, cash flow variability, and cost of equity—linking CSR to firm value. This positive association is stronger in more individualistic countries. Finally, we find that internationalization weakens the role of national culture; however, it accentuates the positive association between firm-level CSR practices and firm value.
Keywords: individualism; national culture; corporate social responsibility; internationalization; environmental performance; social performance; firm value; hierarchical linear model
JEL Classification: G18; G31; G32
Suggested Citation: Suggested Citation