Ripple effect of moral hazard: how does CSR misconduct impact firm performance in the dairy industry

Abstract

In this article we study how collective corporate social responsibility (CSR) misconduct affects the market performance of enterprises in the dairy industry. We do this by revisiting the melamine-tainted milk powder event in China. By comparing pre- and post-event retail data of three different types of infant milk powder manufacturers, as well as by analysing the cumulative abnormal returns (CARs) of those milk powder companies listed on stock markets, based on an event study approach, the ripple effect of China's melamine incident as an exogenous shock was investigated. The results show that industrial CSR misconduct has a suppression effect on the enterprises involved, overlapping suppression and spillover effects on domestic enterprises that were not involved, as well as spillover effects for foreign peers. Lessons from the melamine contamination incident and its policy implications should be valuable in promoting the CSR level and sustainability of other similar fast-growing industries in developing countries.