Is CSR Helpful or Hurtful

Abstract

Despite considerable concern in the management literature over the performance effects of undertaking CSR, we have to date gained little insight on this issue due to conflicting findings. We attempt to address this issue. In this research, we examine which of two opposing theoretical arguments best explains the relationship between CSR and performance. Using a natural experiment context relating to the 2004 Asian Tsunami disaster, we develop two separate models in this regard. Drawing on a strategic approach for the first model, we hypothesize that firms’ international exposure, competition and reputation in their industry are positively related to CSR. An agency theory approach is reflected in in the second model which hypotheses that institutional shareholding, tenure of CEO, board independence and managerial ownership are negatively related to CSR choices. Our findings suggest that the agency explanation for CSR outweigh the strategic explanation. Further we examine the effect of CSR activities on the firm performance. Using a matched sample of 471 US companies, we find that firms that did not engage in CSR activities outperformed the firms that engaged in CSR activities on the stock market. These findings have important implications for the debate in management regarding CSR as a source of competitive advantage.