Business Strategy, Corporate Social Responsibility Activities, and Financial Performance

Abstract

ABSTRACTThis study examines how the alignment between business strategy (prospector versus defender) and Corporate Social Responsibility (CSR) affects company performance. While some CSR involves internal stakeholders, others involve external stakeholders. External CSR may bring public visibility and company prestige, and internal CSR can strengthen employee relations. Using data from U.S. publicly listed companies, which is readily available, we find a stronger positive relation between external (internal) CSR and financial performance for prospector (defender) companies than for defenders (prospectors). These results are robust using alternative measures for strategy, internal CSR, and external CSR. Also, the positive relation is more pronounced for multinational companies than for domestic companies. Our study contributes to the extant literature on international accounting, CSR, and business strategy. Our findings have significant implications for managers in global markets because they demonstrate that different types of CSR can increase company competitive advantages and simultaneously advance social and economic conditions.JEL Classifications: G30; L10; M4; M14.