Corporate Social Responsibility and Cost Stickiness

Abstract

This paper examines the effects on cost stickiness of firms’ involvement in corporate social responsibility (CSR) activities. Cost stickiness represents asymmetric cost behavior whereby the magnitude of cost increases in response to an increase in activity level is greater than the magnitude of cost decreases with a decrease in activity level. We hypothesize that CSR involvement requires ongoing investments in value-creating activities that may involve significant downward adjustment costs during periods of revenue shocks, giving rise to cost stickiness. We use two different CSR proxies and find support for our hypothesis. We further decompose CSR into strategic and tactical CSR and find that cost stickiness is more pronounced for strategic CSR. Finally, we examine the CSR-related cost behavior pattern during economic recession and find that costs stickiness is associated with strategic CSR decrease.