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When Doing Good Backfires: The Effects of Corporate Social Responsibility Fit on Long- and Short-Term Investors

Fri, October 4, 3:45 to 5:15pm, TBA

Abstract

We investigate how the fit of a company’s corporate social responsibility (CSR) activities to its business operations affects the investment willingness of long- and short-term investors. While prior research shows several positive outcomes associated with CSR, we predict and find that low-fit CSR activities can backfire by reducing the investment willingness of long-term investors when companies are involved in controversial “sin” industries (e.g., alcohol, tobacco, gambling). Conversely, both low- and high-fit CSR increase long-term investor willingness to invest in firms involved in industries aimed at doing good for society (i.e., “virtue firms”). Importantly, our study also shows that CSR fit only affects long-term investors. Short-term investors view all types of sin firm CSR negatively. Our findings inform the ongoing debate regarding whether to regulate CSR reporting, and help managers better design CSR initiatives to maximize the return on their investment while still having a positive impact on society.

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