Product safety is an important corporate social responsibility (CSR) issue and plays a key role in determining firms’ long-term success. This study examine whether firms sacrifice product quality in order to deliver financial performance. Prior studies suggest that greater analyst following creates pressure for managers to meet or beat analyst forecasts. Using a manually collected sample of consumer product recalls under the 1972 Consumer Product Safety Act, we find that both the probability and the frequency of product recalls are significantly higher for firms with more analyst following. The severity of the recalls is greater in these cases. The association between analyst coverage and product recalls is more positive for firms with lower overall corporate social responsibility performance. Overall, these findings are consistent with the pressure to deliver financial performance negatively affect firms’ CSR performance in terms of product safety.
Working Paper
There are still many, many things we do not know about how taking a more sustainable approach to business can lead to better financial, social, and environmental outcomes for a wider range of stakeholders. We aspire to make the Center for Sustainable Business a world-renowned hub for applied research in the field of sustainable business models.
CSB Working Paper Series
Do Firms Sacrifice Corporate Social Responsibility to Deliver Financial Performance? Evidence from Product Safety Issues
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Does Corporate Social Responsibility Reporting Help Firms Attract More Socially Responsible Customers?
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Using a Chinese market setting where some firms are required to provide Corporate Social Responsibility (CSR) reports annually from 2008, we examine whether CSR reporting helps firms attract socially responsible customers. We find that after the mandatory CSR reporting requirement, firms that are required to provide CSR reports experience an increases in their exports to customers in countries with high social awareness. However, their exports to customers in countries with low social awareness do not significantly change. These findings support the argument that CSR reporting helps firms attract socially responsible customers. Our findings help us better understand the benefits of CSR reporting to firms and investors.
Do Firms Undercut Environmental Tax by Avoiding More Income Taxes?
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The Chinese government enacted an Environmental Protection Tax Law in 2018 in an effort to reduce corporate pollution. In this study, we investigate whether firms try to undercut this environmental protection measure by avoiding more other types of taxes. We find that firms operating in pollution industries engage in more avoidance of corporate income taxes after 2018. As a result, the effect of the environmental tax on firms’ overall tax burden is mitigated. Also, we find that the reduction in pollution of these firms after 2018 is smaller when the firms avoid more income taxes. These findings are consistent with firms try to undercut this environmental protection measure by avoiding more income taxes.
Purpose Claims and Capacity-Based Credibility: Evidence from the Labor Market
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Organizational scholars have long recognized the importance of corporate purpose, defined as a goal beyond profit maximization, meant to galvanize workers in the firm. Increasingly, however, companies are making claims about corporate purpose to external audiences, and we have little understanding of how these claims may be perceived. A key question is credibility; under what conditions are these claims believed by audiences? We argue that purpose claims can attract external stakeholders and that the ambition and future orientation of these claims makes firm capacity a key source of credibility. We examine these issues in the labor market context, where employers make claims of corporate purpose in recruitment efforts. In our first study, with job posting and application data from an online job board, we develop a novel measure of purpose claim language and examine its effect on application likelihood. We then examine the moderating effect of firm size, as a proxy for capacity. We find that high-purpose job posts receive approximately 52% more applications than low-purpose job posts when the firm has more than 1,000 employees, but only receive a 13% increase when the firm has fewer than 50 employees. In a second study, we use an online experiment to test whether differences in firm size are interpreted as differing degrees of capacity to realize purpose claims and whether these different perceptions of capacity impact application likelihood. Our results confirm that perceptions of capacity help to explain the relationship between corporate purpose claims, firm size, and job attraction.
Corporate Purpose and Employee Sustainability Behaviors
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This paper examines the effects of employees’ sense that they work for a purpose-driven company on their workplace sustainability behaviors. Conceptualizing corporate purpose as an overarching, relevant, shared ethical vision of why a company exists and where it needs to go, we argue that it is particularly suited for driving employee sustainability behaviors, which are more ethically complex than the types of employee ethical behaviors typically examined by prior research. Through four studies, two involving the actual employees of construction companies, we demonstrate that purpose drives the sustainability behaviors of employees by causing them to take psychological ownership of sustainability. In addition, we show that the sustainability-enhancing effect of purpose is stronger when employees perceive that they have higher autonomy in enacting their sustainability actions and for those employees for whom being moral is more central to their sense of self.
Building Democratic Systems for Startups
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With Center for Sustainable Business support, Trevor Young-Hyman, Assistant Professor of Business Administration and Sociology in the Katz School of Business at the University of Pittsburgh, has undertaken a new research project on the formation of democratic business organizations in the entrepreneurship space. See below for a more in-depth description of this forthcoming working paper.
Worker cooperatives, credit unions, grocery cooperatives, professional partnerships, and utility cooperatives are all examples of democratically governed organizations, where members hold formal power to either govern directly or elect representatives to a governing body. Democratic organizations have been suggested as a means to formalize socially responsible business, through a governance structure that provides representation to community and worker stakeholders. Democratic firms have demonstrated a number of socially beneficial outcomes: expanding access to market opportunities for marginalized groups, reducing poverty, reducing internal wage disparity, increasing employment stability, and prioritizing environmental sustainability. However, a key question concerns their creation and emergence: we have little understanding of the relationship between democratic organization and entrepreneurship. While some have characterized entrepreneurial firms as inherently less hierarchical, the demands for strong leadership and rapid decision-making in entrepreneurial firms may hinder democratic organization. In this project, we explore this question through a longitudinal ethnographic study of a nascent democratic organization in Pittsburgh. We negotiated permission to collect audio and video recordings of meetings, interview workers, observe the day-to-day life of the organization, access archival documents, and scrape chat data from their online platform. We collected data between 2018, when the worker cooperative was established, and was completed in 2020. We will use an inductive coding process to develop theory around the ways that democratic organization and entrepreneurial demands interact, how they reinforce each other, how they conflict, and how these conflicts can be resolved.
Women’s Activism, Corporate Identity, and Female Board Representation
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While there is ample evidence documenting the positive effect of women’s activism on female representation in politics, scholars know relatively little about its potential impact on gender diversity in the corporate world. We aim to fill this gap in the literature by providing the first empirical analysis of the relationship between women’s activism and female representation on corporate boards. Drawing on the extensive scholarship on social movements as well as original, qualitative interviews with representatives of women’s organizations, we argue that women’s activists use various strategies – empowering, informing, and shaming – to increase the number of women on corporate boards. In addition, we posit that the effect of women’s activism on female board representation is moderated by facets of corporate identity: it is greater for firms that are reputation-seeking and committed to corporate social responsibility, and it is smaller for firms with a right-wing political orientation. We test these propositions by analyzing firm- and country-level data on more than 3,000 companies from 35 countries over a period of ten years (2002-2011). Using linear regression models (i.e. OLS, Tobit, and 2SLS), we find support for all of our hypotheses. These results are reasonably robust to a variety of alternative model specifications, including an instrumental variable approach that mitigates concerns about reverse causality and omitted variable bias. Theoretical and practical implications are discussed.
Firms and Social Responsibility: A Review of ESG and CSR Research in Corporate Finance
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We review the financial economics-based research on ESG and CSR with emphasis on corporate finance. In doing so we focus on the most debated and researched questions: The relationships between firms with the highest ESG/CSR profiles and their market environments, their leadership, and their owners as well as how these firms' ESG/CSR profiles are linked to their risk, performance, and value.
Backup Analysis for Conversation Article
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This document contains additional definitions and background analyses for an article published by CB Bhattacharya in The Conversation, a network of not-for-profit media outlets that publish news stories written by academics and researchers. The premise of this article is that having a higher purpose can help firms improve their sustainability performance as well as their financial performance. This article was also picked up by Fast Company.
When and How Does Negative Publicity Lead to Better Financial Performance? Consumer Boycotts in the Age of Political Polarization
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This paper examines the effect of negative publicity on firms’ financial performance. We argue that whether public controversies increase or decrease financial performance is a function of the political environment in which firms operate. Specifically, we posit that in highly polarized political environments, negative publicity is likely to elicit a consumer boycott from one side of the political spectrum, which in turn will prompt those on the other side to support the company at the center of the controversy by purchasing more of its products. The additional sales from such counter-activism can not only offset but may even exceed the losses from the initial consumer boycott, thereby leading to a positive relationship between negative publicity and firm financial performance. We test this argument by analyzing data on 1,040 US firms over a period of ten years (2002-2011). Using both fixed effects and instrumental variable models, we find that negative publicity has a positive and significant effect on companies’ sales and revenue. In addition, our results suggest that public controversies had a negative effect on financial performance in the early 2000s. By the mid-2000s, this effect had turned positive and has become stronger since. This finding provides support for our argument that political polarization is the driving force behind the positive effect of negative publicity on financial performance, since the mid-2000s is around the time when political polarization accelerated in the United States.