The differential effects of CEO narcissism and hubris on corporate social responsibility

Research Summary: While prior studies have predominantly shown that CEO narcissism and hubris exhibit similar effects on various strategic decisions and outcomes, this study aims to explore the mechanisms underlying how narcissistic versus hubristic CEOs affect their firms differently. Specifically, we investigate how peer influence moderates the CEO narcissism/hubris—corporate social responsibility (CSR). With a sample of S&P 1500 firms for 2003–2010, we find that the positive relationship between CEO narcissism and CSR is strengthened (weakened) when board‐interlocked peer firms invest less (more) intensively in CSR than a CEO's own firm; the negative relationship between CEO hubris and CSR is strengthened when peer firms are engaged in less CSR than a CEO's own firm. Managerial Summary: Some CEOs are more narcissistic while others may be more hubristic, but these two groups of CEOs hold different attitudes toward the extent to which their firms should engage in corporate social responsibility (CSR). Our findings with a large sample of U.S. publically listed firms suggest that narcissistic CEOs care more about CSR, but hubristic CEOs care less. Interestingly, when narcissistic CEOs observe their peer firms engaging in more or less CSR than their own firms, they tend to respond in an opposite manner; in contrast, hubristic CEOs will only engage in even less CSR when their peers also do not emphasize CSR. Our findings point to a fundamental difference between CEO narcissism and hubris in terms of how they affect firms' CSR decisions based on their social comparison with peer firms.     

The impact of corporate social responsibility on investment recommendations: Analysts' perceptions and shifting institutional logics

We explore the impact of corporate social responsibility (CSR) ratings on sell‐side analysts' assessments of firms' future financial performance. We suggest that when analysts perceive CSR as an agency cost they produce pessimistic recommendations for firms with high CSR ratings. Moreover, we theorize that, over time, the emergence of a stakeholder focus shifts the analysts' perceptions of CSR. Using a large sample of publicly traded U.S. firms over 15 years, we confirm that, in the early 1990s, analysts issue more pessimistic recommendations for firms with high CSR ratings. However, analysts progressively assess these firms more optimistically over time. Furthermore, we find that analysts of highest status are the first to shift the relation between CSR ratings and investment recommendation optimism. Copyright © 2014 John Wiley & Sons, Ltd.     

High‐Reputation Firms and Their Differential Acquisition Behaviors

Research summary: E merging reputation research suggests that high‐reputation firms will act to maintain their reputations in the face of high expectations. Yet, this research remains unclear on how high‐reputation firms do so. We advance this research by exploring three questions related to high‐reputation firms' differential acquisition behaviors: Do high‐reputation firms make more acquisitions than similar firms without this distinction? What kind of acquisitions do they make? How do investors react to high‐reputation firms' differential acquisition behaviors? We find that high‐reputation firms make more acquisitions and more unrelated acquisitions than other firms. Yet, we also find that investors bid down high‐reputation firms' stock more than other firms' in response to acquisition announcements, suggesting that investors are skeptical of how high‐reputation firms maintain their reputations . Managerial summary: W e know that high‐reputation firms wish to maintain their elite standing in the face of high‐market expectations, but we know little about how they do so. We explore this puzzle by investigating how reputation maintenance influences high‐reputation firms' acquisition behaviors. We classify high‐reputation firms are those firms that make Fortune's M ost A dmired annual list, and we find that high‐reputation firms make more acquisitions and more unrelated ones than other firms. Surprisingly, we also find that the market tends to react negatively to these acquisitions. Thus, managers may want to reconsider their strategy of making acquisitions as a means to maintain their firms' high reputations . Copyright © 2017 John Wiley & Sons, Ltd.     

Red,blue, and purple firms: Organizational political ideology and corporate social responsibility

Research summary : Why do firms vary so much in their stances toward corporate social responsibility (CSR )? Prior research has emphasized the role of external pressures, as well as CEO preferences, while little attention has been paid to the possibility that CSR may also stem from prevailing beliefs among the body politic of the firm. We introduce the concept of organizational political ideology to explain how political beliefs of organizational members shape corporate advances in CSR . Using a novel measure based on the political contributions by employees of Fortune 500 firms, we find that ideology predicts advances in CSR . This effect appears stronger when CSR is rare in the firm's industry, when firms are high in human capital intensity, and when the CEO has had long organizational tenure . Managerial summary : Why do firms vary in their stances toward corporate social responsibility (CSR )? Prior research suggests that companies engage in CSR when under pressure to do so, or when their CEOs have liberal values. We introduce the concept of organizational political ideology, and argue that CSR may also result from the values of the larger employee population. Introducing a novel measure of organizational political ideology, based on employees' donations to the two major political parties in the United States, we find that liberal‐leaning companies engage in more CSR than conservative‐leaning companies, and even more so when other firms in the industry have weaker CSR records, when the company relies heavily on human resources and when the company's CEO has a long organizational tenure . Copyright © 2016 John Wiley & Sons, Ltd.     

How CEO hubris affects corporate social (ir)responsibility

Grounded in the upper echelons perspective and stakeholder theory, this study establishes a link between CEO hubris and corporate social responsibility (CSR). We first develop the theoretical argument that CEO hubris is negatively related to a firm's socially responsible activities but positively related to its socially irresponsible activities. We then explore the boundary conditions of hubris effects and how these relationships are moderated by resource dependence mechanisms. With a longitudinal dataset of S&P 1500 index firms for the period 2001–2010, we find that the relationship between CEO hubris and CSR is weakened when the firm depends more on stakeholders for resources, such as when its internal resource endowments are diminished as indicated by firm size and slack, and when the external market becomes more uncertain and competitive. The implications of our findings for upper echelons theory and the CSR research are discussed. Copyright © 2014 John Wiley & Sons, Ltd.     

Reaching through the fog: Institutional environment and cross‐border giving of corporate foundations

Research Summary : Corporate philanthropy has long been recognized as an important part of multinational strategy, yet we know relatively little how charitable giving is allocated across countries. Using a sample of 208 U.S.‐based corporate foundations from 1993 to 2008, we find that the foundations give more in countries with opaque institutional environments, but they do so through international intermediaries. They also give more when the funding firms have new entries in countries with weak institutions—hence greater needs for the social license to operate—or when their operations require stronger connections with local suppliers or customers. These findings point to the use of corporate philanthropy as part of corporate diplomacy when the local institutions are ineffective and the importance of reaching out to local constituents is high. Managerial Summary : Corporate foundations play an important role in firms' charitable giving across countries. This article analyzes how foundation giving is associated with the funding firm's need to navigate the local business environments. Using a sample of 208 U.S.‐based corporate foundations from 1993 to 2008, we find that foundations give more in countries characterized by weak rule of law and high levels of corruption, and when the funding firms have newly established subsidiaries or stronger need to connect with local stakeholders there. However, donations to countries with weak institutions are more likely to go through international intermediaries to avoid potential liabilities. The results are consistent with the view that corporate foundations support corporate diplomacy and help obtain the social license to operate in the host countries.     

Well Known or Well Liked? The Effects of Corporate Reputation on Firm Value at the Onset of a Corporate Crisis

Research summary : We study how two dimensions of reputation (i.e., generalized favorability and being known) and attribution of crisis responsibility affect firm value at the onset of a crisis. Analyzing 126 corporate crises befalling publicly listed firms in China from 2008 to 2014, we find that generalized favorability serves as a buffer, while being known can be a burden, in influencing firm value. We also find that the buffering effect of generalized favorability is stronger when the attribution of crisis responsibility is low (vs. high). In addition, there is a negative interaction effect between the two dimensions of reputation such that the buffering effect of generalized favorability weakens when firms are better known. We discuss our contributions to research on corporate reputation and crisis management. Managerial summary : Corporate reputation is an intangible asset, especially at the onset of a corporate crisis. This research sheds light on the “double‐edged sword” of corporate reputation by examining the effects of two reputation dimensions (i.e., being liked and being known) on firm value. Our results suggest that well‐liked firms can leverage their generalized favorability among stakeholders to assuage firm value loss, whereas well‐known firms may have to better communicate with stakeholders to overcome the burden of stakeholders' attention that escalates firm value loss. To better cope with the onset of a crisis, firms should therefore enhance their generalized favorability and simultaneously avert stakeholders' excessive attention. In addition, well‐liked firms can further buffer against the loss in firm value by reducing the perceived intentionality of a crisis. Copyright © 2017 John Wiley & Sons, Ltd.     

Mind the gap: The interplay between external and internal actions in the case of corporate social responsibility

Research summary : We explore the effect of the interplay between a firm's external and internal actions on market value in the context of corporate social responsibility (CSR). Specifically, drawing from the neo‐institutional theory, we distinguish between external and internal CSR actions and argue that they jointly contribute to the accumulation of intangible firm resources and are therefore associated with better market value. Importantly, though, we find that, on average, firms undertake more internal than external CSR actions, and we theorize that a wider gap between external and internal actions is negatively associated with market value. We confirm our hypotheses empirically, using the market‐value equation and a sample comprising 1,492 firms in 33 countries from 2002 to 2008. Finally, we discuss implications for future research and practice. Managerial summary : Companies often accumulate intangible assets by taking internally and externally oriented CSR actions. Contrary to popular beliefs, the data show that they undertake more internal than external ones: firms do more and communicate less. How does a potential gap (i.e., a misalignment) between internal and external CSR actions affect a firm's market value? We find that although together (the sum of) internal and external actions are positively associated with market value, a wider gap has negative implications. In other words, firms do not realize the full benefits of their internal actions when such actions are not externally communicated to key stakeholders, and to the investment community in particular. This negative association with market value is particularly salient in CSR‐intensive and the natural resources and extractives industries. Copyright © 2015 John Wiley & Sons, Ltd.     

Looking good by doing good: The antecedents and consequences of stakeholder attention to corporate disaster relief

Stakeholder theory suggests a relationship between corporate social responsibility (CSR) and corporate financial performance (CFP) because certain stakeholders reward certain types of CSR. This argument assumes that stakeholders attend to firms' CSR activities—an assumption that has yet to be examined. We fill this gap by extending stakeholder theory to the context of stakeholder attention to firm CSR and exploring the antecedents and consequences of stakeholder attention to corporate disaster relief CSR. We test the resulting hypotheses on a sample of public companies that engaged in natural disaster relief efforts, finding that stakeholder attention partially mediated the relationship between disaster relief and CFP and that stakeholder attention to corporate disaster relief was driven by the legitimacy, urgency, and enactment of disaster relief CSR initiatives. Copyright © 2014 John Wiley & Sons, Ltd.     

Resolving a dilemma of signaling bankrupt‐firm emergence: A dynamic integrative view

Research summary : Predicting the emergence of bankrupt firms relying on firm signals involves a stigma‐related dilemma. On the one hand, bankrupt firms tend to send positive signals through restructuring to decouple themselves from the stigma of bankruptcy. On the other hand, the preexistence of the bankruptcy stigma may reduce the signaling effectiveness of firms' restructuring efforts, making the outcome prediction difficult. We address this dilemma by developing a dynamic integrative view to extend signaling theory, arguing that subsequent signals from key external stakeholders can effectively help evaluate bankrupt firms' quality and reduce the ambiguity in interpreting firms' restructuring signals. Using a sample of U.S. public bankrupt firms under Chapter 11 reorganization, we find evidence supporting the argument. Managerial summary : Applications of signaling theory to predict reorganization outcomes are in their infancy. The dynamic integrative framework developed in this study is useful in identifying different types of signals and predicting outcomes of firms in crisis. The results of this study can be useful for various decision makers to predict the turnaround potential of bankrupt firms. Our results show that an increase in alliance partners, institutional investors, and securities analysts following a bankrupt firm predicts the firm's reorganization outcome. Moreover, firms that are able to gain positive attention from key stakeholders will also gain positive interpretations of their strategic efforts. Signals from alliance partners and institutional investors amplify the signaling effect of a firm's de‐diversification effort in predicting its reorganization outcome. Copyright © 2015 John Wiley & Sons, Ltd.     

Host country executives' assessments of international joint ventures and divestitures: An experimental approach

A large body of research examines the modes by which multinational firms enter foreign markets, yet little work has considered how host country executives evaluate alternative modes of accepting inward foreign direct investment (FDI). This study adopts the host country firm's perspective to investigate the factors that affect Chinese executives' assessments of international joint ventures (IJVs) and divestitures as different modes for engaging inward FDI opportunities. We use an experimental approach to test our argument that executives' preferences for IJVs versus divestitures are driven by multinational firms' resources as well as potential transaction hazards and available remedial mechanisms. This study complements extant research on firms' entry mode choice by offering a direct test of comparative economic organization by explicitly comparing the attractiveness of alternative modes. Copyright © 2013 John Wiley & Sons, Ltd.     

Orchestrating corporate social responsibility in the multinational enterprise

Research Summary: Multinational enterprises (MNEs) invest significant resources in corporate social responsibility (CSR), but their attempts to build a global “social brand” may clash with the execution of operational strategies at a subsidiary level. Using a game-theoretic model, this research addresses the complex interplay of different contingencies that shape the coordination and control challenges facing MNEs when they implement global CSR strategies, including brand spillovers, the risk of public scandals caused by irresponsible behavior, the size of the MNE network, as well as the roles played by nongovernmental organizations and altruistic managers. Challenging the view of CSR as insurance against lapses of responsible conduct, our model shows that investment in social brands helps avoid irresponsible practices across the MNE network, thereby inducing subsidiaries to “walk the talk.” Managerial Summary: Global social brands are increasingly valuable to multinational enterprises (MNEs), which makes the control and coordination of responsible behavior across their network of foreign subsidiaries a relevant managerial challenge. Indeed, lapses of responsible conduct at the subsidiary level often generate reputational damage at the multinational level. This research explores several mechanisms that help MNEs manage this coordination and control challenge. First, it shows under what conditions MNEs can leverage their investments in social brands to induce responsible practices across their global network. Second, it illustrates how MNEs can exploit collaborations with nongovernmental organizations to reduce the costs of coordinating and controlling their subsidiaries. Finally, it identifies conditions under which MNEs benefit from hiring altruistic managers to run their subsidiaries.     

Does product market competition foster corporate social responsibility? Evidence from trade liberalization

This study examines whether product market competition affects corporate social responsibility (CSR). To obtain exogenous variation in product market competition, I exploit a quasi‐natural experiment provided by large import tariff reductions that occurred between 1992 and 2005 in the U.S. manufacturing sector. Using a difference‐in‐differences methodology, I find that domestic companies respond to tariff reductions by increasing their engagement in CSR. This finding supports the view of “CSR as a competitive strategy” that allows companies to differentiate themselves from their foreign rivals. Overall, my results highlight that trade liberalization is an important factor that shapes CSR practices. Copyright © 2014 John Wiley & Sons, Ltd.     

A darker side of knowledge transfer following international acquisitions

We consider a knowledge flow that dominates the international acquisition context but can actually harm foreign acquired firms' performance: non–location‐specific knowledge transfer from acquirers to acquired firms (N‐LSKT). Considering its behavioral consequences, we argue that such knowledge transfer often may destabilize existing power structures in foreign acquired firms prompting conflict and power struggles, and as a result negatively affects their performance. We find support for this adverse knowledge transfer effect. Only at very high levels of N‐LSKT, when acquirers are likely to extend their own capabilities and associated power structures more completely, do the performance effects improve. Further, predeal success of acquirers and post‐deal functional integration amplify, while acquirers' strategic control over the acquired firm alleviates the generally negative effects of N‐LSKT. Copyright © 2015 John Wiley & Sons, Ltd.     

The relationship between corporate social responsibility and shareholder value: an empirical test of the risk management hypothesis

Do shareholders gain when managers disperse corporate resources through activities classified as corporate social responsibility (CSR)? Strategy scholars have recently developed a theoretical model that links such activities to shareholder value when a firm suffers a negative event; we test key portions of this theory of the ‘insurance‐like’ property of CSR activity. We posit that such activity leads to positive attributions from stakeholders, who then temper their negative judgments and sanctions toward firms because of this goodwill. We extend the risk management model by theorizing that some types of CSR activities will be more likely to create goodwill and offer insurance‐like protection than other types. We delineate several firm and event specific characteristics that we expect to influence the link between CSR activities and an insurance effect. We then test our model using an event study of 178 negative legal/regulatory actions against firms throughout the 11 years from 1993–2003. We find that participation in institutional CSR activities—those aimed at a firm's secondary stakeholders or society at large—provides an ‘insurance‐like’ benefit, while participation in technical CSRs—those activities targeting a firm's trading partners—yields no such benefits. We conclude by considering the implications of our findings for future theorizing and research into the economic value of CSR engagement. Copyright © 2008 John Wiley & Sons, Ltd.     

Competing for government procurement contracts: The role of corporate social responsibility

Research Summary: This study examines whether corporate social responsibility (CSR) improves firms’ competitiveness in the market for government procurement contracts. To obtain exogenous variation in firms’ social engagement, I exploit a quasi‐natural experiment provided by the enactment of state‐level constituency statutes, which allow directors to consider stakeholders’ interests when making business decisions. Using constituency statutes as instrumental variable (IV) for CSR, I find that companies with higher CSR receive more procurement contracts. The effect is stronger for more complex contracts and in the early years of the government‐company relationship, suggesting that CSR helps mitigate information asymmetries by signaling trustworthiness. Moreover, the effect is stronger in competitive industries, indicating that CSR can serve as a differentiation strategy to compete against other bidders. Managerial Summary: This study examines how companies can strategically improve their competitiveness in the market for government procurement contracts—a market of economic importance (15–20% of GDP). It shows that companies with higher social and environmental performance (CSR) receive more procurement contracts. This effect is stronger for more complex contracts, in the early years of the government–company relationship, and in more competitive industries. These findings indicate that firms’ CSR can serve as a signaling and differentiation strategy that influences the purchasing decision of government agencies. Accordingly, managers operating in the business‐to‐government (B2G) sector could benefit from integrating social and environmental considerations into their strategic decision making.     

Do ratings of firms converge? Implications for managers,investors and strategy researchers

Research summary : Raters of firms play an important role in assessing domains ranging from sustainability to corporate governance to best places to work. Managers, investors, and scholars increasingly rely on these ratings to make strategic decisions, invest trillions of dollars in capital, and study corporate social responsibility (CSR), guided by the implicit assumption that the ratings are valid. We document the surprising lack of agreement across social ratings from six well‐established raters. These differences remain even when we adjust for explicit differences in the definition of CSR held by different raters, implying the ratings have low validity. Our results suggest that users of social ratings should exercise caution in interpreting their connection to actual CSR and that raters should conduct regular evaluations of their ratings. Managerial summary : Ratings of corporate social responsibility (CSR) guide trillions of dollars of investment, but managers, investors, and researchers know little about whether these ratings accurately measure CSR. In practice, there are examples of highly rated firms becoming embroiled in scandals and the same firm receiving sharply different ratings from different rating agencies. We evaluate six of the leading raters and find little overlap in their assessments of CSR. This lack of consensus suggests that social responsibility is challenging to measure reliably and that users of these ratings should be cautious in drawing conclusions about firms based on this data. We encourage the rating agencies to regularly validate their data in an effort to improve the measurement of CSR. Copyright © 2015 John Wiley & Sons, Ltd.     

Influencing public policymaking: Firm‐, industry‐, and country‐level determinants

This paper examines the determinants of firms' public policymaking influence. Using a novel and global database that measures firms' perceived influence over the executive and legislative branches of government, a systematic analysis of the firm‐, industry‐, and country‐level determinants, and interrelationships among these determinants of firms' public policymaking influence is undertaken. The empirical results indicate that large firms perceive they have more public policymaking influence than small firms, but these differences are conditioned by the number of industry competitors and the structure of the country political institution environment. Nonmarket strategy implications that follow from this refined understanding are developed and discussed. Copyright © 2014 John Wiley & Sons, Ltd.     

Cross‐border mergers and acquisitions: The role of private equity firms

Research summary: We show that private equity ownership (“PE backing”) of the acquirer is a signal of deal quality in cross‐border takeovers. As such, PE‐backed acquirers experience higher announcement returns in cross‐border takeovers, but only if targets are in poor information environments. We show that PE backing is a positive market signal because of PE firms' experience and networks that result from prior deals in target countries. We document that the market correctly anticipates that operating performance of PE‐backed acquirers increases as a result of cross‐border mergers and acquisitions (M&A). Managerial summary: We study cross‐border acquisitions by acquirers that are partially owned by private equity firms (“PE backing”). Cross‐border acquisitions are challenging as acquirers often have little information about targets. We document that investors react positively to cross‐border deals of PE‐backed acquirers—their stock prices increase upon deal announcements. However, this is only the case if targets are in countries with poor information environments. This is because PE backing allows acquirers to access PE firms' deal experience and networks. This makes it easier to identify and evaluate good targets, making it more (less) likely that a deal eventually creates (destroys) value. Consistent with this, we find that earnings of PE‐backed acquirers increase after buying targets in poor information environments. Copyright © 2016 John Wiley & Sons, Ltd.     

Higher Highs and Lower Lows: The Role of Corporate Social Responsibility in CEO Dismissal

Research summary: Investing a firm's resources in corporate social responsibility (CSR) initiatives remains a contentious issue. While research suggests firm financial performance is the primary driver of CEO dismissal, we propose that CSR will provide important additional context when interpreting a firm's financial performance. Consistent with this prediction, our results suggest that past CSR decisions amplify the negative relationship between financial performance and CEO dismissal. Specifically, we find that greater prior investments in CSR appear to expose CEOs of firms with poor financial performance to a greater risk of dismissal. In contrast, greater past investments in CSR appear to help shield CEOs of firms with good financial performance from dismissal. These findings provide novel insight into how CEOs' career outcomes may be affected by earlier CSR decisions. Managerial summary: In this study, we examined a potential personal consequence for CEOs related to corporate social responsibility (CSR). We explored the role prior investments in CSR play when a board evaluates the firm's financial performance and considers whether or not to fire the CEO. Our results suggest that while financial performance sets the overall tone of a CEO's evaluation, CSR amplifies that baseline evaluation. Specifically, our results suggest that greater past investments in CSR appear to (a) greatly increase the likelihood of CEO dismissal when financial performance is poor, and (b) somewhat reduce the likelihood of CEO dismissal when financial performance is good. Thus, striving to deliver profits in a socially responsible manner may have both positive and negative personal consequences. Copyright © 2017 John Wiley & Sons, Ltd.