Does the market respond to an endorsement of social responsibility? The role of institutions, information, and legitimacy

Jonathan P. Doh, Shawn D. Howton, Shelly W. Howton, Donald Siegel

Research output: Contribution to journalArticle

142 Citations (Scopus)

Abstract

A consensus has emerged in the burgeoning literature on corporate social responsibility (CSR) that "virtuous" firms are often rewarded by the marketplace. Unfortunately, the mechanisms through which those rewards materialize are not well understood. Furthermore, it is difficult for managers and investors to know whether a company is actually engaged in responsible behavior. Thus, many stakeholders rely on institutional assessments of a firm's social practices to inform their own judgments about that company's CSR reputation. In this article, we draw on institutional theory and research on reputation and legitimacy to investigate the relationship between institutional endorsements (and repudiation) of CSR and firm financial performance. Our empirical results indicate that institutional intermediaries influence market assessments of a firm's social responsibility and highlight the importance of the legitimacy-conferring function of expert bodies in understanding the relationship between social and financial performance. Our findings also illustrate the delicate interplay among different social performance assessments, reputation, and measures of financial and operating performance such that operating performance may serve as an advanced indicator of social performance and one type of social performance assessment may temper market reactions to another.

Original languageEnglish (US)
Pages (from-to)1461-1485
Number of pages25
JournalJournal of Management
Volume36
Issue number6
DOIs
StatePublished - Oct 12 2010
Externally publishedYes

Fingerprint

Social responsibility
Social performance
Endorsements
Legitimacy
Financial performance
Corporate Social Responsibility
Operating performance
Performance assessment
Investors
Institutional theory
Empirical results
Managers
Reward
Stakeholders
Intermediaries
Market reaction
Social practice

Keywords

  • corporate social responsibility
  • event study analysis
  • institutional theory (sociology)
  • socially responsible investing (SRI)

ASJC Scopus subject areas

  • Finance
  • Strategy and Management

Cite this

Does the market respond to an endorsement of social responsibility? The role of institutions, information, and legitimacy. / Doh, Jonathan P.; Howton, Shawn D.; Howton, Shelly W.; Siegel, Donald.

In: Journal of Management, Vol. 36, No. 6, 12.10.2010, p. 1461-1485.

Research output: Contribution to journalArticle

@article{1baf2fc164d64803a9e993b321f94488,
title = "Does the market respond to an endorsement of social responsibility? The role of institutions, information, and legitimacy",
abstract = "A consensus has emerged in the burgeoning literature on corporate social responsibility (CSR) that {"}virtuous{"} firms are often rewarded by the marketplace. Unfortunately, the mechanisms through which those rewards materialize are not well understood. Furthermore, it is difficult for managers and investors to know whether a company is actually engaged in responsible behavior. Thus, many stakeholders rely on institutional assessments of a firm's social practices to inform their own judgments about that company's CSR reputation. In this article, we draw on institutional theory and research on reputation and legitimacy to investigate the relationship between institutional endorsements (and repudiation) of CSR and firm financial performance. Our empirical results indicate that institutional intermediaries influence market assessments of a firm's social responsibility and highlight the importance of the legitimacy-conferring function of expert bodies in understanding the relationship between social and financial performance. Our findings also illustrate the delicate interplay among different social performance assessments, reputation, and measures of financial and operating performance such that operating performance may serve as an advanced indicator of social performance and one type of social performance assessment may temper market reactions to another.",
keywords = "corporate social responsibility, event study analysis, institutional theory (sociology), socially responsible investing (SRI)",
author = "Doh, {Jonathan P.} and Howton, {Shawn D.} and Howton, {Shelly W.} and Donald Siegel",
year = "2010",
month = "10",
day = "12",
doi = "10.1177/0149206309337896",
language = "English (US)",
volume = "36",
pages = "1461--1485",
journal = "Journal of Management",
issn = "0149-2063",
publisher = "SAGE Publications Inc.",
number = "6",

}

TY - JOUR

T1 - Does the market respond to an endorsement of social responsibility? The role of institutions, information, and legitimacy

AU - Doh, Jonathan P.

AU - Howton, Shawn D.

AU - Howton, Shelly W.

AU - Siegel, Donald

PY - 2010/10/12

Y1 - 2010/10/12

N2 - A consensus has emerged in the burgeoning literature on corporate social responsibility (CSR) that "virtuous" firms are often rewarded by the marketplace. Unfortunately, the mechanisms through which those rewards materialize are not well understood. Furthermore, it is difficult for managers and investors to know whether a company is actually engaged in responsible behavior. Thus, many stakeholders rely on institutional assessments of a firm's social practices to inform their own judgments about that company's CSR reputation. In this article, we draw on institutional theory and research on reputation and legitimacy to investigate the relationship between institutional endorsements (and repudiation) of CSR and firm financial performance. Our empirical results indicate that institutional intermediaries influence market assessments of a firm's social responsibility and highlight the importance of the legitimacy-conferring function of expert bodies in understanding the relationship between social and financial performance. Our findings also illustrate the delicate interplay among different social performance assessments, reputation, and measures of financial and operating performance such that operating performance may serve as an advanced indicator of social performance and one type of social performance assessment may temper market reactions to another.

AB - A consensus has emerged in the burgeoning literature on corporate social responsibility (CSR) that "virtuous" firms are often rewarded by the marketplace. Unfortunately, the mechanisms through which those rewards materialize are not well understood. Furthermore, it is difficult for managers and investors to know whether a company is actually engaged in responsible behavior. Thus, many stakeholders rely on institutional assessments of a firm's social practices to inform their own judgments about that company's CSR reputation. In this article, we draw on institutional theory and research on reputation and legitimacy to investigate the relationship between institutional endorsements (and repudiation) of CSR and firm financial performance. Our empirical results indicate that institutional intermediaries influence market assessments of a firm's social responsibility and highlight the importance of the legitimacy-conferring function of expert bodies in understanding the relationship between social and financial performance. Our findings also illustrate the delicate interplay among different social performance assessments, reputation, and measures of financial and operating performance such that operating performance may serve as an advanced indicator of social performance and one type of social performance assessment may temper market reactions to another.

KW - corporate social responsibility

KW - event study analysis

KW - institutional theory (sociology)

KW - socially responsible investing (SRI)

UR - http://www.scopus.com/inward/record.url?scp=77957661318&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=77957661318&partnerID=8YFLogxK

U2 - 10.1177/0149206309337896

DO - 10.1177/0149206309337896

M3 - Article

VL - 36

SP - 1461

EP - 1485

JO - Journal of Management

JF - Journal of Management

SN - 0149-2063

IS - 6

ER -