Does Timing Matter? CSR Investment in Different States of Economy

• In Event: Public Interest & Social Responsibility

Abstract

This paper examines the impact of economic conditions on a firm’s CSR investment and on its financial performance-CSR relationship. On one hand, a good economy provides consumers stronger purchasing power and increases the marginal benefits of CSR as firms have more to gain from per unit CSR spending. On the other hand, during bad times, firms may also invest in CSR to chase the reduced market share and manage reputation. The exact impact of the economy, thus, depends on which theory dominates. Using data from the financial crisis period, our results show 1) the amount of CSR investment differs significantly between good times and bad times, and the difference is inconsistent across areas of CSR 2) During both good and bad times, there is a significant positive relationship between financial performance and CSR for all firms, and 3) For profit firms, they have more CSR concerns in bad times only, and 4) loss firms exhibit different performance-CSR relationships between good economy and bad economy. The results provide evidence that firms’ motivation behind conducting CSR investment hinges on states of the economy, and that firms’ profitability plays an important role in CSR decisions

Authors

• Jiali Tang, University of Massachusetts-Lowell

• Janie Casello Bouges, University of Massachusetts-Lowell

• Khondkar E Karim, University of Massachusetts-Lowell