"Economic Recession, Performance Prospect and Corporate Social Investment"

Abstract

Drawing on the behavioral theories and CSR literature, this research examines the effects of the economic recession and corporate financial performance (CFP) on firms’ investment in CSR between 2003 and 2011. We theorize that the recession and corporate financial performance, independently and jointly, determine firms’ CSR investment by influencing decision- makers’ perception and risk-taking propensities. Our analysis of a large number of publicly traded companies shows that firms reduced their CSR efforts following the recent economic recession. As for the effect of financial performance, the results showed that a firm’s investment in CSR increased when its financial performance prospect falls below its historical and industry performance targets, in the pre-recession period. In the post-recession period, however, its CSR efforts decreased precipitously as a firm’s financial performance is expected to fall farther below its historical or industry targets. These dissimilar behavioral patterns support an increasing impact of organizational rigidity at the presence of perceived threats. Similar depressing effect is also found among the firms whose expected performance exceeded their historical targets in the post-recession.. This study makes contributions to the CSR literature by incorporating the behavioral perspectives into CSR investment decisions.