Corporate Social Performance and Economic Cycles

Abstract

Do firms respond to changes in economic growth by altering their corporate social responsibility programs? If they do respond, are their responses simply neglect of areas associated with corporate social performance (CSP) or do they also cut back on positive programs such as profit sharing, public/private housing programs, or charitable contributions? In this paper, we argue that because CSP-related actions and programs tend to be discretionary, they are likely to receive less attention during tough economic times, a result of cost-cutting efforts. However, the various CSP performance areas vary in terms of their resource requirements and their influence on financial performance (short- and long-term), which suggests that firms may respond differently depending on area. Consequently, in addition to examining CSP concerns separately from positive actions and programs (CSP strengths), we also examine the influence of economic growth across the five areas of diversity, employee relations, the environment, product quality/safety, and the community. Based on data from 837 firms over 15 years, our results suggest that firms neglect some areas associated with CSP during economic downturns, resulting in increased concerns about community and employee relations, product safety/quality, and the environment. However, this relationship does not apply to positive actions and programs. Instead, firms tend to increase their positive CSP programs in areas such as diversity, employee relations, and the environment during periods of slow economic growth and reduce them when the economy picks up. We offer potential explanations for our findings and discuss their importance to research on CSP.