Do firms walk the talk when economic uncertainty is high?

Abstract

The growing influence of stakeholders and unprecedented emphasis on corporate social responsibility (CSR) have significantly changed the way firms operate. To seek legitimacy from stakeholders, firms might implement CSR measures in true essence while others might turn to CSR decoupling (i.e., higher CSR disclosure than performance), which is detrimental to the firm and stakeholders, specifically when facing high economic uncertainty. Using a large dataset of U.S. firms listed between 2002 and 2019, we examine how economic policy uncertainty (EPU) impacts CSR decoupling. Our findings show that EPU and CSR decoupling are positively and significantly associated, suggesting that firms do not walk the talk when economic uncertainty is high. These results expand legitimacy theory by suggesting that corporations use CSR disclosure as a façade to seek legitimacy from stakeholders when faced with high uncertainty. Interestingly, female directors, who are associated with higher ethicality, acquit themselves well when uncertainty is high: gender-diverse boards play a significant role in moderating policy uncertainty's adverse impacts on CSR decoupling. These findings are robust to different regression models, subsample analysis, and endogeneity issues.