In the Same Boat Towards Social Impact: Business Group Affiliates’ CSR

Abstract

Business groups (BGs) are fundamental drivers of economic activity and growth in many countries. However, research on the financial performance of groups and affiliates dominates the field. The socio-environmental impact of BGs, beyond externalities of their financial performance and economic impact, has widely been overlooked. This paper contributes by considering the impact of BG affiliation on one form of affiliates’ non-financial performance; specifically on corporate social responsibility (CSR). We argue that a firm’s BG affiliation increases member firms’ engagement in behaviors and strategies that potentially lead to improved socio-environmental impact through a social embeddedness mechanism. Central to this mechanism are the links between the collective, i.e. group-level of a BG, and the individual affiliates’ goals and behavior. Individual firms within a BG may have their behaviors shaped by different pressures and incentives – leading to variation in compliance and shirking depending on the level of affiliation. This effect is expected to fade the more peripheral the focal organization is within the BG in a structural sense. However, once the BG network transcends national borders, the effect of being too decoupled form the BG network might again incentivize more CSR from a focal affiliate. We test our hypotheses drawing on a unique dataset of approximately 7,000 firms across 46 countries over 10 years. Owing to the comprehensive nature of our dataset, we also control for country-level institutions beyond company-level financial aspects.