Doing bad by doing good? Corporate social responsibility fails when controversy arises

Abstract

While the benefits of CSR may offer suppliers a competitive advantage in their customer market, CSR remains a paradox as firms struggle to strike a balance between the financial, social, and environmental interests of stakeholders. Such confliction is greatly intensified for firms whose core business and/or marketing communications contradict the general social and environmental interests of the society. Considering theories and concepts borrowed from consumer behavior that appear to have been influential in explaining pertinent B2B buyer purchasing decisions, this paper empirically investigates the contingency conditions underpinning CSR and its communication effect on organizational customer outcomes. Our results, based on panel data from Kinder, Lydenberg, and Domini (KLD) and Compustat database, suggest that on average B2B firms' CSR communications significantly enhance their firm value; however, this value enhancing effect is attenuated when controversies weigh in on firms' industry and/or corporate reputations. Specifically, CSR communications have significantly positive impact on firms in regular settings, but the impact becomes negligible or even negative for firms operating in controversial industries or firms face controversial advertising problems. Theoretical and managerial implications of the research are provided.