Corporate social responsibility as a defense against knowledge spillovers: Evidence from the inevitable disclosure doctrine

Abstract

Research Summary We examine whether companies respond to the threat of knowledge leakage by strategically increasing their engagement in corporate social responsibility (CSR). To obtain exogenous variation in the threat of knowledge leakage, we exploit a natural experiment provided by the rejection of the inevitable disclosure doctrine (IDD) by several U.S. states. Using a difference‐in‐differences methodology we find that, following the rejection of the IDD, companies significantly increase their CSR. Our proposed rationale is that CSR helps mitigate knowledge leakage by (i) reducing employees' propensity to join a rival firm, and (ii) reducing employees' propensity to disclose the firm's valuable knowledge even if they join a rival firm. Evidence from a laboratory experiment, an online experiment, and a survey of knowledge workers is supportive of these arguments. Managerial Summary We study the role of CSR in companies' response to the threat of knowledge leakage—a major managerial challenge that has important implications for firms' innovation and competitiveness. We use three different research designs (an analysis of companies' CSR policies in response to an increased threat of knowledge leakage; a survey of knowledge workers; and an experiment conducted both online and in a laboratory setting). The results show that CSR is perceived to mitigate the threat of knowledge leakage. In particular, (i) CSR reduces knowledge workers' propensity to join rival firms (i.e., they are less likely to “walk”) and, even if they do, (ii) CSR reduces their propensity to disclose the firm's valuable knowledge to their new employer (i.e., they are less likely to “talk”).

Is managerial entrenchment always bad and corporate social responsibility always good? A cross‐national examination of their combined influence on shareholder value

“…These scores range between 0 and 100. Although this database is relatively new, it has already been validated in CSR research (e.g., Bettinazzi & Zollo, 2017;Eccles et al, 2014;Flammer & Kacperczyk, 2019;Hawn, Chatterji, & Mitchell, 2018;Hawn & Ioannou, 2016;Ioannou & Serafeim, 2012;Luo, Wang, Raithel, & Zheng, 2015). Stock market data were collected from Datastream and accounting information from Worldscope.…”

The effect of trade secrets protection on disclosure of forward‐looking financial information

“…Finally, our study also contributes to recent studies of the effect of trade secret protection laws on employee mobility and knowledge spillover (Png, , ), patenting (e.g., Dass, Nanda, & Xiao, ; Glaeser, ; Png, ), firms’ capital structure (Klasa et al., ), cost structure (Gao & Wang, ), investment in knowledge assets (e.g., Qiu & Wang, ), corporate social responsibilities (Flammer & Kacperczyk, ), and firm value (Castellaneta et al., ; Klasa et al., ; Qiu & Wang, ). Our evidence shows that strengthening trade secret protection laws could lead to more disclosure of forward‐looking financial information.…”

“…Png and Samila () find that a ruling against IDD recognition leads to more mobility for technical workers and a higher return on education for these workers. Flammer and Kacperczyk () show that due to the increased risk of losing knowledge workers, the rejection of the IDD leads firms to increase their corporate social responsibility activities that aim at enhancing employees’ loyalty, improving employers’ reputations for fostering innovative activities, and encouraging the social and environmental engagement of employees. Trade secret protection laws can also affect firms’ innovation activities.…”

“…As discussed in Section 2.2, trade secret protection laws directly reduce the risk of losing trade secrets to rivals by restricting the mobility of knowledge employees and knowledge transfer (e.g., Flammer & Kacperczyk, ; Png & Samila, ). These laws also lead to a reduction in the amount of trade secret information publicly revealed by companies (Glaeser, ; Li et al., ).…”

Orchestrating corporate social responsibility in the multinational enterprise

“…In most cases, CSR initiatives are broadcast by MNEs through sustainability reports, webpages, corporate communications, advertising campaigns, logos, and trademarks, with the ultimate goal of building global “social brands” (Huber, Meyer, Vogel, & Vollmann, ). Recent studies have indeed shown that investment in CSR may enhance the bottom line (Bode, Singh, & Rogan, ; Flammer & Kacperczyk, ; Fosfuri, Giarratana, & Roca, ; Kaul & Luo, ).…”