Do Non-socially Responsible Companies Achieve Legitimacy Through Socially Responsible Actions? The Mediating Effect of Innovation

Abstract

This study investigates the effects on organization's financial performances of, firstly, the extent to which the organizations are involved in controversial business activities, and secondly, their level of social performance. These companies can be considered non-socially responsible given the harmful nature of the activities they are involved in. Managers of these companies may still have incentives to pursue socially responsible actions if they believe that engaging on those actions will help them to achieve legitimacy and improve investors' perception about them. We develop a comprehensive methodology to investigate these corporate social performance related effects in a complex but specific setting. To this end, we analyze a sample of 202 US firms for the period 2003-2008 using a novel method in this area: partial least squares. Our results indicate that, contrary to the general findings in prior literature, companies involved in controversial business activities which engage in corporate social performance (CSP) do not directly reduce the negative perception that stakeholders have about them. Instead, we found evidence of a positive mediation effect of CSP on financial market-based performance through innovation.

The role of sustainable development and innovation on firm performance

“…When the mediator (Figure 3) is added, the influence of CSR hardly decreases, but a significant direct effect on objective performance is maintained (c' = 0.213; t = 2.17), in accordance with previous research. Moreover, it is shown that innovation (H1op: a*b) does not mediate the relationship between CSR and objective performance in contrast to previous findings (Blanco et al, 2013;Hull & Rothenberg, 2008;Surroca et al, 2010).…”

“…Based on the above studies, we propose that innovation plays a mediating role between CSR and firm performance (Blanco, Guillamón-Saorín, & Guiral, 2013;Perrini, Russo, Tencati, & Vurro, 2011;Surroca et al, 2010). That is, innovation is the way in which social responsible firms can improve their performance.…”

Proactive Corporate Environmental Responsibility and Financial Performance: Evidence from Chinese Energy Enterprises

“…A firm's stakeholders are generally interested in PCER, yet they may be constrained by the firm's financial situation. When firms are in financial distress, they are not able to assume more responsibility [51]. Highly profitable firms are more readily able to take a pragmatic approach to legitimacy such as better-quality products to consumers and fewer emission of wastes and poisonous gases to the community [35,52].…”

The mediating effect of transparency in the relationship between corporate social responsibility and corporate reputation

“…The concept of transparency takes part in many mediating relationships, especially in the field of human resources (Sharma, 2009;Vogelgesang, Leroy, & Avolio, 2013) or trust in government (Song & Lee, 2015). Several authors, such as Surroca, Tribo, & Waddock, (2010), Huang and Lien (2012) or Blanco, Guillamón-Saorín, and Guiral, (2013), have previously raised the inclusion of mediating effect explanations in the relationship between social and financial performance. However, previous studies have focused on the role of innovation.…”