This week’s articles reflect on the influence of CSR activities on company performance.

What good does doing good do? 
In this study, the authors explore how investors reconcile information on firms’ social responsibility with analysts’ assessments of future firm risk in the pricing of long-term bonds. The researchers ask whether investors pay attention to small strides toward and/or small slips away from socially responsible behaviour, arguing that analysts’ corporate bias toward gains and against losses influences investor reactions to corporate social responsibility.

The writers hypothesise that analysts notice and reward improvements in social responsibility, yet excuse lapses. The authors find support for this hypothesis, using a unique dataset of long-term bonds that combines lagged measures of firm-level financial and social performance with bond-specific data pertaining to risk of default and pricing. The empirically robust asymmetry in investor responses to small but often cumulative increases versus decreases in corporate social responsibility reveals an under-examined root cause of longer-term, larger-scale distortions in financial market returns regarding corporate social performance.

The findings elaborate earlier behavioural research on how corporate bias influences analysts’ short-term assessments of economic risk, by theorising why this corporate bias may influence long-term assessments of social risk. This work also motivates more critical scrutiny of the role analysts play in revising the future risk of today’s social action versus inaction.

Oana Branzei, Jeff Frooman, Brent Mcknight and Charlene Zietsma. 2018.  What Good Does Doing Good do? The Effect of Bond Rating Analysts’ Corporate Bias on Investor Reactions to Changes in Social Responsibility.
Journal of Business Ethics, 148(1), 183–203.


Ethical reputation of financial institutions: Do board characteristics matter? 
This paper examines the association between board characteristics and the ethical reputation of financial institutions. Given the pivotal governance role of the board of directors and the value-relevance of ethical corporate behaviour, the authors postulate a positive relationship between ethical reputation and board features that foster more effective monitoring and oversight.

Using a sample of large financial institutions from 13 different countries, the authors run several alternative panel regressions of ethical reputation on board characteristics and firm-specific controls. The results demonstrate that the ethical reputation of financial institutions is positively associated with board size, gender diversity, and CEO duality, while being negatively related to the busyness of the board members and a composite index reflecting poor monitoring.

Nevertheless, inconsistent with the authors’ hypothesis, the authors also document that financial institutions with less frequent board meetings have better ethical reputation. Overall, the empirical findings suggest that stronger board oversight may promote ethical behaviour in the financial industry.

Laura Baselga-Pascual, Antonio Trujillo-Ponce, Emilia Vähämaa and Sami Vähämaa. 2018. Ethical Reputation of Financial Institutions: Do Board Characteristics Matter?
Journal of Business Ethics, 148(3), 489–510.


Relationship between CSR ratings and company financial performance in Europe 
Research focusing on the relationship between measures of Corporate Social Responsibility (CSR) and company financial performance has led to mixed results in the North American context. In addition, the ethical attitudes and approaches toward CSR investments of both companies and rating agencies are not necessarily the same in Europe and the United States.

In this study, the authors use CSR ratings issued by a major European CSR ratings agency (Vigeo) to examine in a bi-directional manner the relationships between CSR ratings and financial performance in the European context. Bi-directional means an examination of the relationship between prior CSR ratings and subsequent accounting and financial performance and reciprocally, the impact of accounting and financial performance of year N − 1 on CSR ratings of year N.

The principal findings are:
(1) the greater the market capitalisation of a company, the higher the Vigeo rating,
(2) the higher the risk of the company, the lower the Vigeo rating, and
(3) the greater the stock market return of a company, the lower the Vigeo rating.

Based on these findings, the authors propose (1) a concept of “political visibility” pursuant to which enterprises of a greater size are exposed to greater pressure to conform to norms of socially acceptable behaviour, (2) a concept of “priorities” in which enterprises that have resolved their most urgent financial needs have a greater ability to invest in CSR, (3) a concept of “rating downgrading” which reveals the sanctioning role of the rating agency from an ethical standpoint.

Bertrand P. Quéré, Geneviève Nouyrigat and C. Richard Baker. 2018. A Bi-Directional Examination of the Relationship Between Corporate Social Responsibility Ratings and Company Financial Performance in the European Context.
Journal of Business Ethics, 148(3), 527–544.


CSR and investment efficiency 
Using a sample of 21,030 US firm-year observations that represents more than 3000 individual firms over the 1998–2012 period, the authors investigate the relationship between Corporate Social Responsibility (CSR) and investment efficiency. The researchers provide strong and robust evidence that high CSR involvement decreases investment inefficiency and consequently increases investment efficiency.

This result is consistent with expectations that high CSR firms enjoy low information asymmetry and high stakeholder solidarity (stakeholder theory). Moreover, the findings suggest that CSR components that are directly related to firms’ primary stakeholders (e.g. employee relations, product characteristics, environment, and diversity) are more relevant in reducing investment inefficiency compared with those related to secondary stakeholders (e.g. human rights and community involvement).

Finally, additional results show that the effect of CSR on investment efficiency is more pronounced during the subprime crisis. Taken together, these results highlight the important role that CSR plays in shaping firms’ investment behaviour and efficiency.

Mohammed Benlemlih and Mohammad Bitar. 2018. Corporate Social Responsibility and Investment Efficiency. 
Journal of Business Ethics, 148(3), 647–671.


Do CSR targets in executive compensation contribute to CSR performance? 
To deal with potential conflicts between the triple-bottom-line expectations of investors and the performance of executives, firms can use incentives by integrating corporate social performance (CSP) targets into executive compensation. No evidence yet exists that CSP targets in executive compensation actually lead to an improvement of CSP results.

Using a panel data set of 400 firms for the years 2008–2012 leading to 1846 firm-year observations, the relationships between CSP targets and CSP results and CSP improvements are analysed. The results show that
(a) the level of CSP has no effect on the use of CSP targets,
(b) the use of CSP targets in general does not automatically lead to better CSP results, and
(c) the use of quantitative, hard CSP targets is an effective way to improve CSP results, especially to lower CSP weaknesses.

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Karen Maas. 2018. Do Corporate Social Performance Targets in Executive Compensation Contribute to Corporate Social Performance?
Journal of Business Ethics, 148(3), 573–585.


When is there a sustainability case for CSR?  
Little is known about when corporate social responsibility (CSR) leads to a sustainability case (i.e., to improvements in environmental and social performance). Building on various forms of decoupling, the authors develop a theoretical framework for examining pathways from institutional pressures through CSR management to sustainability performance. To empirically identify such pathways, the researchers apply fuzzy-set qualitative comparative analysis (fsQCA) to an extensive dataset from 19 large companies. These authors discover that different pathways are associated with environmental and social performance (non)improvements, and that pathways to success and failure are for the most part not symmetrical. The researchers identify two pathways to improved environmental performance: an exogenous and an endogenous one. The authors find two pathways to improved social performance that both involve integrating social responsibility into the core business. Pathways to non-improvements are multiple, suggesting that failure can occur in a number of ways, while there are only a few pathways to sustainability performance improvements.

Minna Halme, Jukka Rintamäki, Jette Steen Knudsen, … 2018. When Is There a Sustainability Case for CSR? Pathways to Environmental and Social Performance Improvements.
Business & Society, published online first on March 21, 2018


Performance outcomes of investing slack resources in CSR
Our study examined relationships among slack resources, investment in corporate social responsibility (CSR) and firm performance, finding that accounting and market returns respond differently to investments of slack in CSR.

Although accounting returns to both financial and organisational CSR investment were positive, equity markets reward organisational slack but punish financial slack investments. Moreover, distinguishing among forms of CSR indicates that both accounting and market returns respond much more positively to investment in stakeholder protection than to investment in stakeholder improvement. Finally, risk, strategy, and governance are mediating mechanisms partially explaining CSR effects but not to the extent expected.

James E. Mattingly and Lori Olsen. 2018. Performance Outcomes of Investing Slack Resources in Corporate Social Responsibility.
Journal of Leadership & Organizational Studies, published online first on 21 March 2018