Corporate social responsibility and firm performance: a theory of dual responsibility

Abstract

Purpose

The authors aim to develop and test a theory of dual responsibility to explain the relationship between corporate social responsibility (CSR) and firm performance. The authors empirically examine whether firms that meet their economic and social responsibilities simultaneously perform better than firms that fail to do so. In doing so, the authors theoretically extend and empirically test Barney's (2018) call to incorporate the stakeholder perspective with resource-based view (RBV). The authors also examine the moderating effects of firm status on this relationship.

Design/methodology/approach

The authors use a longitudinal panel sample of 137 S&P 500 firms and data for the years between 2004 and 2013 collected from multiple data sources. The authors use stochastic frontiers analysis to measure firm capabilities in the areas of R&D, operations and marketing. These capability measures are then used along with CSR measures and a measure of firm status to test the hypotheses of this study. The authors also conducted several robustness checks and various supplementary analyses using different econometrics techniques and different operationalizations of the key variables of interests.

Findings

The results show that firm CSR is positively related to firm performance and that the effect of CSR on performance is stronger for firms with higher levels of R&D capability and operational capability. The authors also find support for the three-way interaction between CSR, economic responsibility and firm status, suggesting that firms high in both social and economic responsibilities and status will enjoy the highest levels of performance.

Research limitations/implications

The findings of this study are based on large, publicly listed firms in North America. Therefore, their generalizability to other contexts and other types of firms require additional research. The reliance on KLD measures is also a limitation, especially because they have not reported CSR ratings after 2013.

Practical implications

For practicing managers, the main implication of this study is that an optimal balance between market and nonmarket strategies is key for superior performance.

Social implications

The continued debate regarding the firm's purpose can be understood by focusing equally on the two main responsibilities of firms: nonsocial responsibility and social responsibility toward all stakeholders.

Originality/value

The study answers the call to incorporate stakeholder theory into the RBV of the firm by highlighting the critical role of firm capabilities in the relationship between CSR and performance. The study also highlights the role that firm status plays in the relationship between market and nonmarket strategies and firm performance.

Citation

Al-Shammari, M.A., Banerjee, S.N. and Rasheed, A.A. (2022), "Corporate social responsibility and firm performance: a theory of dual responsibility", Management Decision, Vol. 60 No. 6, pp. 1513-1540. https://doi.org/10.1108/MD-12-2020-1584