Building Trust with Material and Immaterial CSR: Benefits and Consequences

Posted: 19 Oct 2022 Last revised: 13 Feb 2023

See all articles by Hien Hoang

Hien Hoang

UNSW Sydney School of Accounting, Auditing and Taxation

Soon-Yeow Phang

Monash University

Date Written: October 19, 2022

Abstract

We conduct a series of experiments to examine whether the benefits and consequences of building trust through corporate social responsibility (CSR) vary when the company engages in material or immaterial CSR, and the conditions under which these benefits hold. Prior archival research finds that CSR performance can buffer companies against negative stock reactions caused by subsequent adverse events, such as financial restatements. However, theory suggests that there are boundary conditions for this buffering effect through the multiple dimensions of trust violations. Experiment 1 predicts and finds that positive performance in material CSR enhances competence trust, while positive performance in immaterial CSR enhances integrity trust in the company. Experiment 2 predicts and finds that positive material CSR performance alleviates investors’ negative reactions to an error restatement, but this effect does not occur for a fraud restatement. In contrast, positive immaterial CSR performance results in greater negative reactions to a fraud restatement, but this effect does not occur for an error restatement. These effects can be explained through the multiple dimensions of trust and trust violation, in accordance with the schematic model of dispositional attribution. Lastly, a supplementary experiment supports the robustness of our results to the baseline of neutral CSR performance. We contribute new understanding of the trust-building effects of engagement in CSR and, more generally, of how CSR issues with different materiality levels buffer against the adverse effects of negative events after the initial trust-building activities.

Keywords: corporate social responsibility, material sustainability, restatement, trust

JEL Classification: M41

Suggested Citation

Hoang, Hien and Phang, Soon-Yeow, Building Trust with Material and Immaterial CSR: Benefits and Consequences (October 19, 2022). Contemporary Accounting Research, Forthcoming (https://onlinelibrary.wiley.com/doi/10.1111/1911-3846.12838), AASB Research Centre Working Paper 5, Available at SSRN: https://ssrn.com/abstract=4251971

Hien Hoang

UNSW Sydney School of Accounting, Auditing and Taxation ( email )

Sydney, New South Wales
Australia

Soon-Yeow Phang (Contact Author)

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

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