Distances Matter: Parent’s CSR Reputation and CSP of Multinational Enterprises’ Subsidiaries

Abstract

Prior studies found that foreign subsidiaries of multinational enterprises (MNEs) suffer from liability of foreignness (LOF). According to stakeholder theory, foreign subsidiaries may be able to improve their legitimacy of business practices and overcome LOF by demonstrating social commitments to host-country constituents through corporate social responsibility (CSR). This study doesn’t only investigate whether the distances between the MNE home countries and China (host country) affect multinational enterprises (MNEs) foreign subsidiaries’ corporate social performance (CSP), but also examines how sub-national institutions affect the subsidiaries engaging in CSR in China. The study further tests the moderating role of parent’s CSR reputation. Using the data from 2009 to 2015 in the blue books of corporate social responsibility issued by Research Center for Corporate Social Responsibility Chinese Academy of Social Sciences (CASSCSR), the study adopts the top 100 foreign-invested enterprises in China as our sample. The CASSCSR collected the CSR information via their CSR reports, financial reports and official websites; they did an all-around research and valuation on their current CSR information disclosure. The results show the effect of distances on subsidiaries’ CSP in China, and highlight the importance of parent’s CSR reputation as a mechanism that may induce foreign subsidiaries to engage in CSR in China.