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The Financial Performance of the World's Most Ethical Companies: Advantage in Times of Crisis
Abstract
The financial consequences of embracing ethical conduct in business remain a subject of contention in the literature. We discuss why ethical companies can have advantages over others by exploring three concurrent dimensions: organizational values, stakeholder management, and good reputation. We evaluate the long-term financial performance of the World’s Most Ethical Companies, a list devised by Ethisphere, using appropriate financial measures. We find that a portfolio of the World’s Most Ethical Companies consistently outperforms the market during the analysed period, both in times of market growth and during periods of market decline, suggesting these companies are particularly resilient in times of crises and can represent sound investments.
... Soana (2011) focused her study in the Italian banking sector and concluded that those banks who have socially responsible management of employees showed negative relationship with ROA. Improved stakeholder relationships lead to a positive effect on financial performance, as described by ROA and ROE (Areal and Carvalho, 2012;Ayuso, Rodriguez, Garcia-Castro, and Ariño, 2012). Although good governance has positive effects on ROE, the most transparent and efficient ownership structures are also least profitable for shareholders (Soana, 2011). ...
... ROA has proved to be a good predictor of corporate social responsibility and has showed positive relationship with corporate social responsibility and financial performance as a concurrent measure (Cornell and Shapiro, 1987;McGuire, Sundgren, and Schneeweis, 1988). Improved stakeholder relationships lead to a positive effect on financial performance as described by ROA and ROE (Areal and Carvalho, 2012;Ayuso, Rodriguez, Garcia-Castro, and Ariño, 2012). In effect, ROA assesses how efficiently a bank is managing its revenues and expenses, and also reflects the ability of the bank's management to generate net income accruing to the bank from non-interest activities (Saona-Hoffman, 2014). ...
... In the interim, unaudited quarterly financial information influenced more the market-based financial performance measures than the accounting ones. As literature reveals, the investors' opinion and decisional ability might be manipulated with interim financial information that required substantial adjustments at year-end (Crotty, 2009;Choi & Jung, 2008;Kirk, 2002 As shown in Table 10 and (Areal & Carvalho, 2012). Conversely, the OER has a negative effect over TQ but not over MVAR. ...
The financial crisis of 2007-2010 had its origins in 2001, coinciding with an ethical collapse. The ethical crisis had consequences that extended through 2012 and affected the financial performance of the Global Systemically Important Banks (G-SIBs). Explore how the interaction of some ethical predictors can affect the financial performance measures would help enterprises to emphasize the importance of ethical behavior. Data used for this research was collected from the Securities and Exchange Commission. The multivariate analysis of Partial Least Squares regression was used to select relevant indicators of corporate ethical commitment and financial performance. Different measures of performance and, accordingly a large quantile of them, were used to detect the most relevant predictors. Accordingly, the combination of predictors of operational performance, applied governance, and risk can indicate the corporate ethical commitment and predict financial performance, even in times of crisis or ethical collapse.
... Specifically, the list focuses on large (greater than US$50 million in sales or 100 employees) public and private international companies (Erwin, 2011). Since 2007, Ethisphere Magazine has been evaluating thousands of organizations around the world annually regarding their ethics by assessing different dimensions (Areal & Carvalho, 2012;Bernardi et al., 2009). Ethisphere Magazine employs the Ethics Quotient (EQ) framework, a series of multiplechoice questions in five core categories (ethics and compliance program, culture of ethics, corporate citizenship and responsibility, governance, leadership and reputation), to capture and rate a company's performance objectively and consistently (2011). ...
... Consequently, analysts from Ethisphere Magazine will then independently research and analyze to verify the ethics performance of the top percentile of performers in each of the 35 industries based on the EQ scores derived (Larkin et al., 2012). Over the years, 92 to 110 companies have been distinguished annually as the best-inindustry, having obtained the highest scores (Areal & Carvalho, 2012). WMEC winners go beyond making statements about doing business ethically and they demonstrate real and sustained ethical leadership within their industries (Larkin et al., 2012). ...
The value of a company’s ethical reputation has become a focal point for management researchers. We seek to join this conversation and extend the research centered on a firm’s ethical reputation. We accomplish this by shifting our focus away from its impact on external stakeholders to its impact on internal stakeholders. To this end, we rely on signaling theory to explain why a firm’s ethical reputation matters to its employees in an effort to bridge the macro–micro research gap. Across two studies, we propose and demonstrate that a firm’s ethical reputation impacts employee subjective career success in form of career opportunities and work–life balance. Given our signaling theory framework, we also identify and explain when two industry-level characteristics operate as boundary conditions that distort a firm’s ethical reputation signaling properties. Specifically, the results demonstrate that a firm’s ethical reputation is positively related to employees’ perceptions of career opportunities and work–life balance. The results of our studies also demonstrate that the relatively high levels of industry competition and industry regulation weaken the positive impact of a firm’s ethical reputation on career opportunities and work–life balance. Theoretical and practical implications are discussed.
... Olay çalışması metodolojisi kullanılarak yapılan çalışmada soruşturma altında olan veya etik olmayan bir davranış sergileyen şirketlerin çok ciddi ekonomik kayıplar yaşadığını tespit etmiş ve etik olmayan işletmelerin finansal piyasalar tarafından cezalandırıldığını göstermiştir. Areal ve Carvalho (2012), yapmış oldukları çalışmada etik değerlere önem veren ve Ethisphere Enstitüsü'nün en etik şirketler listesinde yer alan markaların rakiplerine karşı daha avantajlı bir konuma sahip olduklarını ortaya koymakta ve krizlerin yaşandığı dönemlerde bile rakiplerine göre pazarlarının daha az küçüldüğünü ifade etmektedir. Biglari (2018), yapmış olduğu çalışmada hisse senedi performansı ile işletmenin yönetim etiği arasında anlamlı bir ilişki olup olamadığını araştırmıştır. ...
Şirketlerin kurumsal yönetimlerinde, etik unsurları benimseyip benimsememesi paydaşları nazarında önemli bir unsur olabilmektedir. İletişim teknolojilerinin de etkisiyle, etik olan veya olmayan davranışlar, kitleler tarafından hızla yayılabilmekte ve çok geniş çevrelerde yankı bulabilmektedir. Bilhassa etik kurallara uygun olmayan davranışlar sergileyen işletmelere; müşterileri, çalışanları, hissedarları ve diğer ilişkili olduğu çevre unsurları kolektif bir şekilde olumsuz geri dönüşlerde bulunabilmektedir. Bu bağlamda bu çalışmanın amacı, şirketlerin etik olup olmamasının, işletmenin marka değeri ve hisse senedi fiyatı üzerindeki etkisinin tespit edilmesidir. Çalışma kapsamında hazırlanan veri seti 2007-2022 zaman aralığını kapsamaktadır. İlgili veri, panel regresyon analizleri aracılığıyla test edilmiştir. Sonuç olarak, şirketlerin etik olup olmamasının marka değeri üzerinde herhangi bir etkisi saptanamamıştır. Fakat etik ile hisse senedi fiyatları arasında ters yönlü bir ilişkinin varlığı ortaya koyulmuştur.
... As a further result, the company's commitment in the BE process is a trigger for improving VD of IC, corroborating the results found by Areal and Carvalho (2012) on a sample of the most ethical companies in the world, as these companies can have advantages over others because of three distinct effects, namely, culture, diversity and reputation. This attitude positively influences the level of IC-VD, suggesting for example that these companies may benefit from special protection in the event of a crisis. ...
Purpose
This study aims to examine the potential effect that business ethics (BE) in general and corporate social responsibility (CSR) more specifically can exert on the voluntary disclosure (VD) of intellectual capital (IC) for the ethically most engaged firms in the world.
Design/methodology/approach
The research design is based on an inductive approach. As part of the global quantitative investigation, the authors have analyzed the impact of BE and CSR on the transparent communication of the IC. The data under analysis have been investigated using multiple linear regression.
Findings
Based on a sample of 83 enterprises emerging as the most ethical companies in the world, the results have revealed that the adoption of ethical and socially responsible approach is positively associated with the extent of VD about IC. This finding may help attenuating the asymmetry of information and the conflict of interest potentially arising with corporate partners. Hence, IC-VD may stand as an evidence of ethical and socially responsible behaviors.
Practical implications
Global and national regulators and policymakers can be involved by these results when setting social reporting standards because they suggest that institutional and/or cultural factors affect top management's social reporting behavior in the publication of the IC information.
Social implications
Direct and indirect stakeholders, if supported by ethical and socially responsible behaviors of the company, could assess more in detail the quality of the disclosed information concerning the IC.
Originality/value
Most of the studies that have been conducted in this field have examined the effect of BE and CSR on the firm's overall transparency, neglecting their potential effect on IC disclosure. This study is designed to fill in this gap through testing the impact of ethical and socially responsible approaches specifically on IC-VD.
Research Question: Does the effect of corporate social responsibility (CSR) practices and value added of intellectual capital (VAIC), is contingent on the intellectual capital (IC) information disclosure policy adoption in the Environmental, Social and Governance (ESG) companies? Does CSR have a moderating effect on the relationship between VAIC and IC disclosure?
Motivation: The majority of the literature has examined the effect of value added and social responsibility on the overall transparency of the business while neglecting their effect on the voluntary intellectual capital disclosure. Our study seeks to fill this gap by testing the moderating effect of socially responsible practices on the relationship between VAIC and voluntary IC disclosure. This paper is the first comprehensive attempt to analyses the interaction between CSR practices and VAIC with voluntary IC disclosure.
Idea: This study examines how CSR practices moderate the relationship between the added value of intellectual capital (VAIC) and voluntary disclosure of IC in the world's most committed ESG companies in business ethics.
Data: The data were collected from Thomson Reuters ASSET4 database from four countries to analyze data of 153 listed companies selected from the Environmental, Social and Governance (ESG) index between 2015 and 2019.
Tools: To test study’s hypotheses, we applied linear regression with a panel data using the Thomson Reuters ASSET4 database.
Findings: Two main results can be derived: First, the integration of CSR into company strategy is positively associated with voluntary IC disclosure. Second, the interaction between CSR practices and VAIC is a determinant of this type of disclosure to reduce the asymmetry of information and the conflict of interest.
Contribution: The majority of the literature has examined the effect of value added and social responsibility on the overall transparency of the business while neglecting their effect on the voluntary intellectual capital disclosure. Our study seeks to fill this gap by testing the moderating effect of socially responsible practices on the relationship between VAIC and voluntary IC disclosure. This paper is the first comprehensive attempt to analyses the interaction between CSR practices and VAIC with voluntary IC disclosure.
There is increasing research attention as to how SMEs might realize corporate social responsibility opportunities. Most studies focus on the pursuance of responsible business strategies that result in favourable business outcomes. This study investigates SMEs who actively participate in CSR activities in a south-eastern European country during the economic crisis of the Eurozone. Data collected reveals that stakeholder salience and proximity moderate the relationship between CSR and financial performance. The context of this study is important as it addresses the paucity of research carried out in countries during economic crisis and sheds light on the positive aspects of CSR practices adopted during crisis.
The notion of “corporate culture” has received widespread attention in the past several years. But what is meant by the term and why should managers be concerned with it? Culture can be thought of as a mechanism for social control. As such, culture is important for both the implementation of strategy and as a mechanism for generating commitment among organizational members. Based on a comparison of strong culture organizations, ranging from cults and religious organizations to strong culture firms, this article argues that culture and commitment result from: systems of participation that rely on processes of incremental commitment; management as symbolic action that helps employees interpret their reasons for working; strong and consistent cues from fellow workers that focus attention and shape attitudes and behavior; and comprehensive reward systems that use recognition and approval. These techniques characterize “strong culture” organizations. © 1989, The Regents of the University of California. All rights reserved.
Little empirical work has been done on the effect of stakeholder management on corporate performance. In this study, we contributed to stakeholder theory development by (1) deriving two distinct stakeholder management models from extant research, (2) testing the descriptive accuracy of these models, and (3) including important variables from the strategy literature in the tested models. The results provide supports for a strategic stakeholder management model but no support for an intrinsic stakeholder commitment model. Implications of these findings for management practice and future research are discussed.
This article provides a framework for simultaneously assessing the affirmative and defensive functions of Corporate Social Responsibility. It is based on integrating two traditionally distinct approaches to CSR: one views it as compatible with economic objectives, while the other regards it as incompatible with them. By bringing these two approaches together and recognizing CSR's multiple functions, this article analyzes how CSR can offer a crucial advantage to managers by providing a means of insuring financial performance against negative events. This latent insurance value is often ignored in traditional evaluations of the relationship between CSR and financial performance.
The results of a survey of business professionals verified a relationship between perceptions of corporate citizenship and organizational commitment. More important, the results demonstrated that the relationship between corporate citizenship and organizational commitment was stronger among employees who believe highly in the importance of the social responsibility of businesses. The results also indicated that the ethical measure of corporate citizenship was a stronger predictor of organization commitment than the economic, legal, and discretionary measures. Last, the results revealed that the discretionary measure was more strongly associated with organizational commitment among female employees.
Most theorizing on the relationship between corporate social/environmental performance (CSP) and corporate financial performance (CFP) assumes that the current evidence is too fractured or too variable to draw any generalizable conclusions. With this integrative, quantitative study, we intend to show that the mainstream claim that we have little generalizable knowledge about CSP and CFP is built on shaky grounds. Providing a methodologically more rigorous review than previous efforts, we conduct a meta-analysis of 52 studies (which represent the population of prior quantitative inquiry) yielding a total sample size of 33,878 observations. The meta- analytic findings suggest that corporate virtue in the form of social responsibility and, to a lesser extent, environmental responsibility is likely to pay off, although the operationalizations of CSP and CFP also moderate the positive association. For example, CSP appears to be more highly correlated with accounting-based measures of CFP than with market-based indicators, and CSP reputation indices are more highly correlated with CFP than are other indicators of CSP. This meta-analysis establishes a greater degree of certainty with respect to the CSP-CFP relationship than is currently assumed to exist by many business scholars.
One important issue is whether spirituality in the workplace can be used only to benefit employees or can it be developed also to the advantage of organizations? The purpose of this article is to articulate a model of how spiritual values can be integrated into organizations and then assess how this model predicts organizational behavior in one company, Southwest Airlines (SWA). The application of this model provides insights into how and under what specific conditions spiritual values can positively impact both profitability and employee attitudes in organizations. Implications for both research and practice are discussed.
Organizational culture is increasingly recognized as a major barrier to leveraging intellectual assets. This article identifies four ways in which culture influences the behaviors central to knowledge creation, sharing, and use. First, culture-and particularly subcultures-shape assumptions about what knowledge is and which knowledge is worth managing. Second, culture defines the relationships between l individual and organizational knowledge, determining who is expected to control specific knowledge, as well as who must share it and who can hoard it. Third, culture creates the context for social interaction that determines how knowledge will be used in particular situations. Fourth, culture shapes the processes by which new knowledge-with its accompanying uncertaintieswis created, legitimated, and distributed in organizations These four perspectives suggest specific actions managers can take to assess the different aspects of culture most likely to influence knowledge-related behaviors. This diagnosis is the critical first step in developing a strategy and specific interventions to align the firm's culture in support of more effective knowledge use.
The Human Resources (HR) function in organizations has had a long and well-documented history, during which it has evolved through a number of distinct stages from a mere record-keeping function to one of strategic importance and bottom-line impact. Implicit in such characterizations is the reputation of HR as well as its effectiveness, and the focus of this paper is to review the status of theory and research on HR reputation and effectiveness, and recommend directions for future work.
Market efficiency survives the challenge from the literature on long-term return anomalies. Consistent with the market efficiency hypothesis that the anomalies are chance results, apparent overreaction to information is about as common as underreac-tion, and post-event continuation of pre-event abnormal returns is about as frequent as post-event reversal. Most important, consistent with the market efficiency prediction that apparent anomalies can be due to methodology, most long-term return anomalies tend to disappear with reasonable changes in technique. 1998 Elsevier Science S.A. All rights reserved.
We review three theoretical approaches to strategic corporate social responsibility (CSR), which can be defined as voluntary CSR actions that enhance a firm's competitiveness and reputation. The end result of such activities should be an improvement in financial and economic performance. Based on an overview of recent empirical evidence, we conclude that economic theories of strategic CSR have the greatest potential for advancing this field of inquiry, although theories of strategic leadership should also be incorporated into this perspective. In the remainder of the manuscript, we provide focused summaries of the papers presented in this special issue and outline an agenda for future research on strategic CSR and environmental sustainability.
We test the relationship between shareholder value, stakeholder management, and social issue participation. Building better relations with primary stakeholders like employees, customers, suppliers, and communities could lead to increased shareholder wealth by helping firms develop intangible, valuable assets which can be sources of competitive advantage. On the other hand, using corporate resources for social issues not related to primary stakeholders may not create value for shareholders. We test these propositions with data from S&P 500 firms and find evidence that stakeholder management leads to improved shareholder value, while social issue participation is negatively associated with shareholder value. Copyright © 2001 John Wiley & Sons, Ltd.
We test the relationship between shareholder value, stakeholder management, and social issue participation. Building better relations with primary stakeholders like employees, customers, suppliers, and communities could lead to increased shareholder wealth by helping firms develop intangible, valuable assets which can be sources of competitive advantage. On the other hand, using corporate resources for social issues not related to primary stakeholders may not create value far shareholders. We test these propositions with data from S&P 500 firms and find evidence that stakeholder management leads to improved shareholder value, while social issue participation is negatively associated with shareholder value. Copyright (C) 2001 John Wiley & Sons, Ltd.
Despite discussion in the popular and academic press, the connection between value judgments and economic success is still unclear in the minds of many executives. Management grounded in value choices for the organization that build compatibility between the individual and the organization is fundamental to decision making. Values-based management lays the foundation for the development of mission and subsequent corporate and individual plans and goals by enabling managers to address and resolve unavoidable dilemmas. Values-based management serves as an essential first step toward building a high growth organization in which individual performance improves and heightened individual achievement drives economic success.
I present a complex theoretical explanation that draws on multiple bodies of literature to present an academically rigorous version of a simple argument: good deeds earn chits. I advance/defend three core assertions: (1) corporate philanthropy can generate positive moral capital among communities and stakeholders, (2) moral capital can provide shareholders with insurance-like protection for a firm's relationship-based intangible assets, and (3) this protection contributes to shareholder wealth. I highlight several managerial implications of these core assertions.
Previous research has identified multiple approaches to the design and implementation of corporate ethics programs (Paine, 1994; Weaver, Treviño, and Cochran, in press b; Treviño, Weaver, Gibson, and Toffler, in press). This field survey in a large financial services company investigated the relationships of the values and compliance orientations in an ethics program to a diverse set of outcomes. Employees’ perceptions that the company ethics program is oriented toward affirming ethical values were associated with seven outcomes. Perceptions of a compliance orientation were associated with four of these outcomes. The interaction of values and compliance orientations was associated with employees’ willingness to report misconduct. In general, a values orientation makes a greater unique contribution to the measured outcomes when compared to a compliance orientation.
Our study asked why corporations introduce formal programs to manage ethics and why those programs display varying characteristics. We used control theory to delineate an ethics program's scope and its orientation toward compliance- and values-based control. Managerial choice theory suggests that environmental factors and management's ethical commitment will influence these dimensions. Environmental factors were the stronger influences on scope, but management commitment was the stronger determinant of control orientation. Research and policy implications are discussed.
This paper argues that moral thinking is an essential management capability which strengthens organizations and contributes to their performance in the marketplace. The paper explains what moral thinking is, and addresses the most common reasons for considering it inappropriate or irrelevant to managerial practice. The argument provides a compelling rationale for the corporate ethics initiatives undertaken in recent years.
Although companies are devoting significant resources to corporate social responsibility (CSR) initiatives, insights into the optimal formulation, implementation, and effectiveness estimation of CSR strategies are currently scarce. This article takes an indepth look at when, why, and how CSR works from a consumer's perspective. In contrast to the simple, monotonie relationships between CSR and consumer purchase behavior evident in marketplace polls, this article proposes a more complex, contingent model of consumer responses to CSR. It articulates both the internal outcomes (e.g., awareness, attitudes, attachment) and external outcomes (e.g., word of mouth, purchase, loyalty) of CSR initiatives for not just the company, but also the consumer and the CSR issue/cause. This article delineates the key factors that are likely to moderate the extent to which the inputs lead to the internal outcomes and the internal outcomes lead to the external ones. This framework can help guide companies in not only formulating and implementing their CSR initiatives, but also measuring the effectiveness of these initiatives.
The notion of "corporate culture" has received widespread attention in the past several years. But what is meant by the term and why should managers be concerned with it? Culture can be thought of as a mechanism for social control. As such, culture is important for both the implementation of strategy and as a mechanism for generating commitment among organizational members. Based on a comparison of strong culture organizations, ranging from cults and religious organizations to strong culture firms, this article argues that culture and commitment result from: systems of participation that rely on processes of incremental commitment; management as symbolic action that helps employees interpret their reasons for working; strong and consistent cues from fellow workers that focus attention and shape attitudes and behavior; and comprehensive reward systems that use recognition and approval. These techniques characterize "strong culture" organizations.
Market efficiency survives the challenge from the literature on long-term return anomalies. Consistent with the market efficiency hypothesis that the anomalies are chance results, apparent overreaction to information is about as common as underreaction, and post-event continuation of pre-event abnormal returns is about as frequent as post-event reversal. Most important, consistent with the market efficiency prediction that apparent anomalies can be due to methodology, most long-term return anomalies tend to disappear with reasonable changes in technique.
In this article we revisit the notion of stakeholder responsibility as a way to highlight the role that stakeholders have in creating an ethical business context. We argue for modifying the prevailing focus on corporate responsibility to stakeholders, and giving more serious attention to the importance of stakeholder responsibility—to firms, and to other stakeholders who are part of the collective enterprise. We elaborate why stakeholder responsibility matters, and suggest how making stakeholder responsibility a central focus of academics and practitioners can redefine the interaction between firms and stakeholders and ultimately enhance business excellence.
Preface PART I: TESTS FOR LINEAR REGRESSION MODELS Introduction Tests for the Classical Linear Regression Model Tests for Linear Regression Models Under Weaker Assumptions: Random Regressors and Non-Normal IID Errors Tests for Generalized Linear Regression Models Finite-Sample Properties of Asymptotic Tests Non-Standard Tests for Linear Regression Models Summary and Concluding Remarks PART II: SIMULATION-BASED TESTS: BASIC IDEAS Introduction Some Simple Examples of Tests for IID Variables and Key Concepts Simulation-Based Tests for Regression Models Asymptotic Properties of Bootstrap Tests The Double Bootstrap Summary and Concluding Remarks PART III: SIMULATION-BASED TESTS FOR REGRESSION MODELS WITH IID ERRORS: SOME STANDARD CASES Introduction A Monte Carlo Test of the Assumption of Normality Simulation-Based Tests for Heteroskedasticity Bootstrapping F Tests of Linear Coefficient Restrictions Bootstrapping LM Tests for Serial Correlation in Dynamic Regression Models Summary and Concluding Remarks PART IV: SIMULATION-BASED TESTS FOR REGRESSION MODELS WITH IID ERRORS: SOME NON-STANDARD CASES Introduction Bootstrapping Predictive Tests Using Bootstrap Methods with a Battery of OLS Diagnostic Tests Bootstrapping Tests for Structural Breaks Summary and Conclusions PART V: BOOTSTRAP METHODS FOR REGRESSION MODELS WITH NON-IID ERRORS Introduction Bootstrap Methods for Independent Heteroskedastic Errors Bootstrap Methods for Homoskedastic Autocorrelated Errors Bootstrap Methods for Heteroskedastic Autocorrelated Errors Summary and Concluding Remarks PART VI: SIMULATION-BASED TESTS FOR REGRESSION MODELS WITH NON-IID ERRORS Introduction Bootstrapping Heteroskedasticity-Robust Regression Specification Error Tests Bootstrapping Heteroskedasticity-Robust Autocorrelation Tests for Dynamic Models Bootstrapping Heteroskedasticity-Robust Structural Break Tests with an Unknown Breakpoint Bootstrapping Autocorrelation-Robust Hausman Tests Summary and Conclusions PART VII: Simulation-Based Tests for Non-Nested Regression Models Introduction Asymptotic Tests for Models with Non-Nested Regressors Bootstrapping Tests for Models with Non-Nested Regressors Bootstrapping the LLR Statistic with Non-Nested Models Summary and Concluding Remarks PART VIII: EPILOGUE Bibliography Author Index Subject Index
This article investigates the postcrisis communication of Aaron Feuerstein, chief executive officer of Malden Mills, after a fire destroyed his textile mill. It explains how leadership communication prior to a crisis has an impact on postcrisis communication. Stakeholder theory is used to ground the analysis and to provide direction in developing practical implications for precrisis and postcrisis communication. The analysis demonstrates the importance of establishing strong communication channels and positive value positions with stakeholders well before crises erupt.
A primary issue in the field of business and society over the past 25 years has been the relationship between corporate social performance and corporate financial performance. Recently, Griffin and Mahon (1997) presented a table categorizing studies that have investigated this relationship. Motivated by concerns with this table, as well as a desire to account for progress in research in this area, the authors reconstructed it. The authors present a portrait of this relationship that is (a) substantially different from that shown in the Griffin and Mahon table and (b) more consistent with the latest research on the topic.
This article introduces a resampling procedure called the stationary bootstrap as a means of calculating standard errors of estimators and constructing confidence regions for parameters based on weakly dependent stationary observations. Previously, a technique based on resampling blocks of consecutive observations was introduced to construct confidence intervals for a parameter of the m-dimensional joint distribution of m consecutive observations, where m is fixed. This procedure has been generalized by constructing a “blocks of blocks” resampling scheme that yields asymptotically valid procedures even for a multivariate parameter of the whole (i.e., infinite-dimensional) joint distribution of the stationary sequence of observations. These methods share the construction of resampling blocks of observations to form a pseudo-time series, so that the statistic of interest may be recalculated based on the resampled data set. But in the context of applying this method to stationary data, it is natural to require the resampled pseudo-time series to be stationary (conditional on the original data) as well. Although the aforementioned procedures lack this property, the stationary procedure developed here is indeed stationary and possesses other desirable properties. The stationary procedure is based on resampling blocks of random length, where the length of each block has a geometric distribution. In this article, fundamental consistency and weak convergence properties of the stationary resampling scheme are developed.
Through a survey of Indian software organizations, we test a model of work-oriented cognitions and performance measures using structural equation modeling. The developed framework presents satisfaction at work, productivity at work, and quality of work as consequences of organizational culture. Further, satisfaction and productivity at work and quality of work are hypothesized as leading to firm profitability and growth while quality of work is presented as a contributor to organizational innovation. The results of the study provide support for the developed model and lead to a number of conclusions and implications for theory and practice.
Corporate social performance (CSP) has been a prominent concept in the management literature dealing with the social role and impacts of the corporation; it has been promulgated as a unifying paradigm for the field. However, the concept of CSP is still lacking strong theoretical foundations and empirical validity, suggesting that the paradigmatic status of CSP might be lost. In this paper, the authors draw on Hirsch and Levin’s (1999) life cycle approach to explore the development of CSP as a concept, explain why it has so recurrently failed to deliver on these dimensions, and offer possible routes for future research that may potentially ameliorate this problem.
We test the relationship between shareholder value, stakeholder management, and social issue participation. Building better relations with primary stakeholders like employees, customers, suppliers, and communities could lead to increased shareholder wealth by helping firms develop intangible, valuable assets which can be sources of competitive advantage. On the other hand, using corporate resources for social issues not related to primary stakeholders may not create value for shareholders. We test these propositions with data from S&P 500 firms and find evidence that stakeholder management leads to improved shareholder value, while social issue participation is negatively associated with shareholder value. Copyright ? 2001 John Wiley & Sons, Ltd.
Approximate tests for a composite null hypothesis about a parameter θ may be obtained by referring a test statistic to an estimated critical value. Either asymptotic theory or bootstrap methods can be used to estimate the desired quantile. The simple asymptotic test ϕA refers the test statistic to a quantile of its asymptotic null distribution after unknown parameters have been estimated. The bootstrap approach used here is based on the concept of prepivoting. Prepivoting is the transformation of a test statistic by the cdf of its bootstrap null distribution. The simple bootstrap test ϕB refers the prepivoted test statistic to a quantile of the uniform (0, 1) distribution. Under regularity conditions, the bootstrap test ϕB has a smaller asymptotic order of error in level than does the asymptotic test ϕA, provided that the asymptotic null distribution of the test statistic does not depend on unknown parameters. In the contrary case, both ϕA and ϕB have the same order of level error. Certain classical refinements to asymptotic tests can be regarded as analytical approximations to the bootstrap test ϕB. These classical results include Welch's estimated t distribution solution to the Behrens-Fisher problem, Bartlett's adjustment to likelihood ratio tests, and Edgeworth expansion corrections to the nonparametric t test for a mean. On the other hand, the bootstrap test ϕB can also be approximated directly by a Monte Carlo algorithm. The prepivoted bootstrap test ϕB,1 is obtained by prepivoting the test statistic twice before referring the result to a quantile of the uniform (0, 1) distribution. Under regularity conditions, the level error of ϕB,1 is of smaller asymptotic order than is the level error of either ϕB or ϕA. Analytical and semianalytical approximations sometimes exist for ϕB,1. In general, a nested double-bootstrap Monte Carlo algorithm yields a satisfactory approximation to ϕB,1. The possibility of direct nonanalytical implementation is a great practical merit of both ϕB and ϕB,1.
Using ethical considerations in strategic decision making will result in the development of the most effective long term and short term strategies. Specifically, ethical criteria must be included as part of the strategic process in before-profit decisions rather than after-profit decisions in order to maximize corporate profits and improve strategy development and implementation. This paper presents a system of decision making to achieve this integration which uses an “interest assessment” that involves the analysis of the ethical, social and legal obligations of an organization.
Although prior research has addressed the influence of corporate social responsibility (CSR) on perceived customer responses, it is not clear whether CSR affects market value of the firm. This study develops and tests a conceptual framework, which predicts that (1) customer satisfaction partially mediates the relationship between CSR and firm market value (i.e., Tobin’s q and stock return), (2) corporate abilities (innovativeness capability and product quality) moderate the financial returns to CSR, and (3) these moderated relationships are mediated by customer satisfaction. Based on a large-scale secondary data set, the results show support for this framework. Notably, the authors find that in firms with low innovativeness capability, CSR actually reduces customer satisfaction levels and, through the lowered satisfaction, harms market value. The uncovered mediated and asymmetrically moderated results offer important implications for marketing theory and practice.
A number of studies have tested the relationship between a corporation's social and ethical performance and its financial performance. In contrast, this is the first study to demonstrate a link between overall financial performance and an emphasis on ethics as an aspect of corporate governance. It identifies the 26.8 percent of the 500 largest U.S. public corporations that, in their annual report to shareholders, commit to ethical behavior toward their stakeholders or emphasize compliance with their code of conduct. The financial performance of these corporations ranks higher than that of those who do not at a significance level of p = < 0.005, using the 1997 Business Week ranking which averages eight publicly-reported measures of historical financial performance. These findings should motivate more corporations to utilize the principles of Social and Ethical Accounting, Auditing and Reporting (SEAAR).
This article is intended to enhance the position of stakeholder theory as an integrating theme for the business and society field. It offers an instrumental theory of stakeholder management based on a synthesis of the stakeholder concept, economic theory, behavioral science, and ethics. The core theory-that a subset of ethical principles (trust, trustworthiness, and cooperativeness) can result in significant com- petitive advantage-is supplemented by nine research propositions along with some research and policy implications. Even before Preston (1975) issued an intellectual call-to-arms, schol- ars in the field of inquiry called business and society sought a paradigm or an integrating framework for topics thought to be central to the disci- pline. Various models-corporate social performance, social control of business, and stakeholder-have been advanced as part of this search. This article attempts to advance the case for using the stakeholder model as an integrating theme for the field by proposing a formal instrumental theory of stakeholder management. The theory represents a synthesis of the stakeholder concept, economic theory, insights from behavioral sci- ence, and ethics. The argument begins with a brief history of the search for a paradigm in the business and society field followed by a discussion of the stakeholder model as theory. Assumptions that underlie the theory are then offered along with discussions of the nature of contracting, effi- cient contracting, and the role of ethics in efficient contracting. An argu- ment is presented for corporate morality as an analog to individual mo- rality. At this point, the instrumental stakeholder theory is formally presented, followed by several research propositions. Implications and extensions of the theory and a brief conclusion complete the article. THE QUEST FOR A BUSINESS AND SOCIETY PARADIGM Although the business and society field has had at least a nominal presence at numerous business schools for over two decades and has experienced considerable growth since then in terms of faculty member- ship in academic organizations and numbers of outlets for scholarly ar-
This paper suggests that there may be a relationship between the external perceptions of organizational culture and corporate branding as measured by reputation. Using an instrument based on the Organizational Culture Profile, 179 industry professionals evaluated eight culture dimensions in six well known Silicon Valley firms (Apple Computer, Cisco Systems, Hewlett Packard, Oracle, Sun Microsystems and 3 Com). Corporate Branding was measured by utilizing a reputation-measuring instrument. Reputations of the firms were obtained by using the six dimension results of Fombrun's Reputation Quotient Survey. Regression analysis was performed on 48 possible pair by pair reputation/culture dimension relationships. A total of 11 correlations were found significant. The findings suggest that in these six firms, the strategic resource of corporate brand (as measured by reputation) may partially reflect external perceptions of culture.Corporate Reputation Review (2002) 5, 159-174; doi:10.1057/palgrave.crr.1540172
The premise of this study is that a good reputation serves as an intangible asset which can help protect the organization in times of corporate crisis — in public-relations terms, the `reservoir of goodwill' presumption. Using data from the stock market crashes in 1987 and 1989, this study examined whether companies with better reputations, as measured by Fortune's annual ratings of America's largest corporations, suffered less severe declines in market value. Results show no significant difference between companies with higher and lower reputations in 1987, when the market dropped over 20 per cent in one day. During this crisis, there was a high volume of automated computer trading and a great deal of investor panic which may have precluded rational investment decision making. In 1989, however, when the market took a less severe sudden, unexpected downturn, the stock prices of companies with better reputations dropped significantly less than those of companies not favored with such positive standing. This supports the hypothesis that good corporate reputations provide a reservoir of goodwill which buffers companies from market decline in times of uncertainty and economic turmoil (short of a panic), underscoring the importance of attentive reputation management.Corporate Reputation Review (2000) 3, 21-29; doi:10.1057/palgrave.crr.1540096
We argue that a shift in the prevailing institutional logic – from an agency perspective to a value perspective – impacts the evaluation of corporate social responsibility (CSR) by sell-side investment analysts. We use a large sample of publicly traded US firms over 15 years and find that under a powerful agency perspective, CSR is unfavorably evaluated by sell-side analysts. In later years, when the institutional logic gradually shifts to a value perspective, analysts progressively assess CSR more favorably. Moreover, we find that analysts of higher status are more likely to switch from unfavorable to favorable evaluations of CSR. Finally, we document no impact of CSR on analysts’ forecast errors suggesting that learning by analysts is unlikely to account for the observed shifts in their evaluations of CSR.
This paper shows that the stylized fact of average mutual fund underperformance documented in the literature stems from expansion periods when funds have statistically significant negative risk-adjusted performance and not recession periods when risk-adjusted fund performance is positive. These results imply that traditional unconditional performance measures understate the value added by active mutual fund managers in recessions, when investors' marginal utility of wealth is high. The risk-adjusted performance (or alpha) difference between recession and expansion periods is statistically and economically significant at 3 to 5 percent per year. Our findings are based on a novel multi-variate conditional regime-switching performance methodology used to carry out one of the most comprehensive examinations of the performance of US domestic equity mutual funds in recessions and expansions from 1962 to 2005. The findings are robust to the choice of the factor model (including bond and liquidity factor extensions), the use of NBER business cycle dates, fund load, turnover, expenses and percentage of equity holdings.