Profit or legitimacy? What drives firms to prioritize social stakeholders?

Abstract

This study questions the assumption that firms always prioritize economic stakeholders (employees and customers) over social stakeholders (communities and the environment). An examination of 468 Chinese private firms reveals three important conditions driving firms to prioritize social stakeholders over economic stakeholders. First, the percentage of family ownership increases the likelihood of social stakeholder priority up to a point, after which further increase in the percentage of family ownership decreases the likelihood of social stakeholder priority. Firms planning initial public offerings and smaller firms are more likely to prioritize social stakeholders. The findings reveal important exceptions and nuances in stakeholder management strategies.