Firms behaving badly? Investor reactions to corporate social irresponsibility

Abstract

Corporate social irresponsibility (CSI) and other questionable business incidents that appear to harm stakeholders frequently afflict firms yet draw disparate investor reactions. We address this disparity by investigating the association between firm legal orientation and investor reactions to CSI. We hypothesize the proportion of board members and top management team (TMT) executives with law degrees affects investor perceptions of firm foresight, and in turn, their judgment of blame and consequent punishment. Based on abnormal returns to 629 announcements of CSI and 308 publicly traded S&P 500 firms, we find that both too small and too large a proportion of board of directors and TMT members with law degrees lead investors to mete out harsher punishment. This inverted u‐shaped link is further affected by firm size, firm risk, and industry competition. Our investigation sheds light on the link between executive education and financial performance in the context of CSI and investor perceptions of foresight.

Executive cues of organizational virtue and market performance: Creating value during times of earnings uncertainty

“…Future research may also benefit from conceptualizing the relationship between certain organizational virtues and market performance as curvilinear (e.g., a situation where too much of a given virtue may actually have negative effects), as extant research has suggested that organizational virtues such as empathy may actually exhibit an inverted U‐shaped relationship with certain organizational outcomes (König et al, 2020). This suggestion is in line with a growing number of studies uncovering inverted U‐shaped relationships in the business and society literature (e.g., Kanuri et al, 2020). Additionally, measuring the effect of virtue cues on nonfinancial conceptualizations of performance may be particularly relevant (especially as it relates to the virtue dimensions of empathy, integrity, and warmth).…”

Corporate social irresponsibility: What we know and what we need to know

“…In his theoretical study, Demacarty (2009) discovered that the financial returns of CSR and CSI are, on average, the same. Later studies empirically analyzed the consequences of CSI on financial performance (Denommee‐Gravel & Kim, 2019; Kanuri et al, 2020; Kim et al, 2018; Lenz et al, 2017; Park et al, 2017; Price & Sun, 2017; Sun & Ding, 2021), the positive relationship between CSI and financial risk (Kölbel et al, 2017; Oikonomou et al, 2012), and dividend policies, where dividend payout is more stable for high CSR firms than CSI firms (Benlemlih, 2019). Evidence is mixed, drawing attention to issues like the domains of CSI and their different effects on performance, as well as the duration of those effects.…”

“…On the other hand, few empirical studies offer a clear and defined idea of CSI. In fact, most articles regard CSI consequences as the opposites of CSR, using mainly KLD indicators (Chatterji & Toffel, 2010; Chen et al, 2018; Kanuri et al, 2020; Kotchen & Moon, 2012; Vassilikopoulou et al, 2005). In other articles, the analysis addressed unfavorable corporate occurrences without providing a specific CSI definition (Frooman, 1997).…”

Assessing the impact of corporate environmental irresponsibility on workplace deviant behavior of generation Z and millennials: a multigroup analysis

“…The vindictiveness on the part of consumer is manifested in various ways; for example, Sweetin et al (2013) deduced that consumers punish (reward) a brand for corporate environmental irresponsibility (CEI) (responsibility) through boycott, negative word of mouth. Furthermore, Kanuri, et al (2020) asserted that investors also adopt negative behaviors to punish socially irresponsible organizations forgoing their financial benefits. Additionally, Antonetti et al (2020) stated that the socially irresponsible organization encountered negative behaviors of the job seekers in the form of reduced organizational attractiveness.…”