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Corporate Social Responsibility as Insurance: Its Limitations and Risk of Backfiring

L. Emily Hickman ^a

Bernard Wong-On-Wing ^b

^{^a}California Polytechnic State University, USA

^{^b}Washington State University, USA

Advances in Accounting Behavioral Research, Volume 27

ISBN: 978-1-83608-281-1, eISBN: 978-1-83608-280-4

Publication date: 29 October 2024

Abstract

Prior research finds that firms disclosing a focus on corporate social responsibility (CSR) experience less negative reactions following a corporate misstep. We predict that this “insurance effect” is limited to cases of ordinary failures (i.e., failures not directly related to the social or environmental impacts of the firm) and may provide no protection when a failure is directly related to CSR. Further, we hypothesize a potential “backfire effect,” where investors react more negatively to a CSR-focused firm in the case of a CSR-related failure than to a traditional firm experiencing the same failure. In-keeping with attribution theory and expectancy violations theory, our results support the predicted limitation of the insurance effect. In addition, we find that the limited insurance effect is mediated by reputational assessments. Although directionally consistent, the proposed backfire effect is not statistically significant. Overall, our results suggest that CSR is not a panacea for dampening the penalties associated with business missteps, and managers seeking to benefit from CSR engagement should be diligent in monitoring their firms' future CSR performance.

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Acknowledgements

Acknowledgments

We would like to thank Khondkar Karim (Editor) and an anonymous reviewer for Advances in Accounting Behavioral Research for their insightful comments, Steven Salterio for his helpful suggestions, as well as participants of the 2018 AAA Accounting, Behavior, and Organizations Research Conference, the 2018 AAA Southwest Region Meeting, and the AAA Annual Meeting for their input.

Citation

Hickman, L.E. and Wong-On-Wing, B. (2024), "Corporate Social Responsibility as Insurance: Its Limitations and Risk of Backfiring", Karim, K.E. (Ed.) Advances in Accounting Behavioral Research, Volume 27 (Advances in Accounting Behavioural Research, Vol. 27), Emerald Publishing Limited, Leeds, pp. 55-96. https://doi.org/10.1108/S1475-148820240000027003

Publisher

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Emerald Publishing Limited