International Diversification and Corporate Social Performance: The Subsidiary Activities Impact

Abstract

In this paper, within the context of Extractive Industry Multinationals (EIMs), we investigate the role that the types of value chain activities undertaken by overseas subsidiaries play in shaping the positive relationship between international diversification and Corporate Social Performance (CSP), found in earlier studies. Drawing on prior research, we hypothesize that EIMs that diversify internationally through extractive activities will tend to increase their CSP more than those diversifying primarily by establishing processing units overseas and that those diversifying internationally through marketing and sales activities will tend to increase their CSP the least. Our underlying rationale is that the need of an EIM to engage in higher or lower levels of CSP depends on the risk of suffering damages to its global legitimacy or reputation from negative events derived from the kinds of activities it engages in through its subsidiaries. Our findings support all our hypotheses for both social and environmental aspects of CSP. We conclude our paper by highlighting the implications of our findings for researchers and managers.