The effect of participation in controversial business on stakeholders management

Abstract

The main objective of this research was to provide knowledge about the effect that participation in controversial business can have on primary stakeholder management. The panel data technique was used to estimate the models. The sample is composed of US firms and covers a five-year period from 2003 to 2007. In total the sample collects information of 2460 company years, representing 800 firms and an average of 3.07 years per firm. The findings reveal that participation in controversial business negatively affects primary stakeholders' management. Thus, firms that are involved in controversial businesses do not have the legitimacy argument to invest on primary stakeholder management, unlike a company that is not involved in controversial businesses. However, these results can not be generalized to every type of controversial business, since the results allow us to observe the difference between each effect on primary stakeholder management and suggest that the controversial business variable is not a homogenous construct.