International Cultural Diversification and Corporate Social Performance in Multinational Enterprises: The Role of Slack Financial Resources

Abstract

Multinational enterprises face numerous challenges due to the difficulties of operating in various markets and the usual cultural differences between the countries. As opposed to local firms, multinational firms are usually exposed to global pressure groups both in home and host countries. In addition, in order to gain license to operate in foreign markets, they are required to be regarded as socially responsible agents that contribute to sustainable development. Finally, apart from the moral reasons, high levels of corporate social performance will lead multinational enterprises to increase their reputation and legitimacy in the areas where they have operations and consequently increase their revenues and levels of financial performance. Traditionally, the literature has focused on studying the relationship between international diversification and corporate results, with very few studies on the effects of internationalisation on firms’ social performance. The aim of this study is to analyse the influence of international cultural diversification of a multinational enterprise on its corporate social performance and to investigate the moderating effect of slack financial resources on this relationship. The present empirical analysis is based on a sample of 113 multinational enterprises from the United States that operate in the chemical, energy and industrial sectors. The results demonstrate that international cultural diversification is positively correlated with the social performance of firms and that a high level of slack financial resources leads multinational enterprises operating in markets with different cultural profiles to improve their corporate social performance. The implications for academia, managers and policy makers are discussed.