The Signaling Effect of Corporate Social Responsibility in Emerging Economies

Abstract

What signals do firms in emerging economies send to stakeholders when they adopt corporate social responsibility (CSR) practices? We argue that in emerging economies, firms that adopt CSR practices positively signal investors that their firms have superior capabilities for filling institutional voids. From an institution-based view, we hypothesize that the institutional environment moderates the signaling effect of CSR on a firm's financial performance. Based on a sample of firms from ten Asian emerging economies, we find a positive relationship between CSR practices and financial performance. This positive relationship is stronger in the less developed capital market than in the more developed one. The financial benefits of CSR practices are also more salient in the low information diffusion market than in the high one. We emphasize that signaling theory and the institutionbased view can jointly contribute to the CSR literature.

Corporate Social Responsibility as a Strategic Means to Attract Foreign Investment: Evidence from Korea

“…Stakeholders, defined as "any group or individual who can affect or is affected by the achievement of the organization's objectives" [29] (p. 46), construct general reputation of the firm by establishing the public recognition and social approval of it [30,31]. Inter-relationships between the firm and its stakeholders develop over time, and it can prompt stakeholders to make positive contributions to the organization [32][33][34].…”

“…When a firm makes efforts to develop eco-friendly and high quality products, customers tend to build a positive reputation of the firm as they perceive the firm's activities as being socially desirable [38][39][40]. This notion suggests that corporate social responsibility (CSR) can be a way for firms to send a reliable signal of their unobservable capabilities [30]. The signal of CSR, accordingly, will enable various stakeholders to believe that the firm will deliver values for the society [41].…”

“…For example, philanthropic activities and environmental preservation campaigns lead to favorable corporate images and evaluations [42,43]. In the stock market, firms engaging in CSR activities including sound governance structures and transparent investments can get positive evaluations from potential investors [30,34]. Choongo [22] illustrated that small-and medium-sized enterprises in Zambia can build a good reputation when they actively engage in CSR activities.…”

Does CSR practice pay off in East Asian firms? A meta-analytic investigation

“…One party credibly conveys information of quality and shows the unobservable attributes of itself to another party with the purpose of gaining a premium (Spence, 1973). While intent information can help parties reduce the possible moral hazards that result from the behavior of the individuals or organizations during the transaction (Su, Peng, Tan, & Chueng, 2014). Spence's (1973) job market signaling model illustrates that the potential employees can send an observable signal (e.g., college diploma and qualification certificate) to firms to show their unobservable characteristics (working ability).…”

Influence of meditation on estate planning decisions: evidence from Indian survey data

“…Signaling theory addresses information asymmetries between two parties in which the sources of asymmetric information are concerned with information about quality or information about intent (Stiglitz 2000;Su et al 2015). In the case of estate planning decisions, the last will writer has better information about the names of beneficiaries on the last will but beneficiaries might not have the same information about the intentions of the last will writer.…”