Corporate Governance and Corporate Social Responsibility (CSR): The Moderating Roles of Attainment Discrepancy and Organization Slack

Abstract

Manuscript Type: Empirical Research Question: Is the relationship between corporate governance mechanisms and corporate social responsibility (CSR) contingent on satisfaction with firm performance? Research Findings/Insights: Our results suggest that while effective corporate governance discourages both positive (proactive stakeholder relationship management) and negative (violation of regulations and standards) CSR, higher slack and positive attainment discrepancy lead to higher positive and lower negative CSR, respectively. More significantly, we find that the association between effective corporate governance and both positive and negative CSR depends on satisfaction with firm performance as indicated by the levels of slack and attainment discrepancy. Put simply, the impact of corporate governance on positive CSR is more pronounced under low slack/negative attainment discrepancy conditions, and that on negative CSR is more pronounced under high slack/positive attainment discrepancy conditions. Theoretical/Academic Implications: Our study provides robust support for the behavioral theory of the firm. Previous research has not adequately considered the role of satisfaction with firm performance in studying the impact of corporate governance on managerial decision-making. We show that the association between corporate governance and CSR dimensions depends on differences in decision-making latitude originating from relative firm performance compared to those of peer firms. Practitioner/Policy Implications: First, to understand how effective corporate governance can constrain positive CSR and more importantly reduce negative CSR. Second, to appreciate that the effectiveness of an organization's governance mechanisms is contingent on slack and performance and the marginal returns from improving governance mechanisms when things are going well may be low.