Slack‐resources hypothesis: a critical analysis under a multidimensional approach to corporate social performance

Abstract

PurposeThe purpose of the paper is to test the slack‐resources hypothesis in corporate social performance (CSP).Design/methodology/approachThe paper uses the technique of panel data in a sample of 624 American listed companies from 2001 to 2007. The literature review builds on the contradictions between the instrumental stakeholder theory and the slack‐resources hypothesis to argue that both concepts are not fully compatible.FindingsThe results indicate that prior financial performance, measured as market value added, positively affects CSP. The results further confirm that slack resources are assigned to specific areas of involvement of CSP (product issues, community relations, environmental issues, employee relations and diversity of the work force), rather than to a unified conception of CSP.Research limitations/implicationsThe current trend in social responsibility regards Friedman's arguments as old‐fashioned and assumes the instrumental stakeholder to be true. The results presented here indicate that part of Friedman's claims may be occurring in reality, so further investigation is needed before they are disregarded.Practical implicationsThe multidimensional nature of CSP, here proposed and confirmed by the exploratory models, indicates that each dimension of social performance may be impacted by the availability of funds different intensities; and according to the instrumental view (assuming the virtuous circle is true), investment in each particular dimension may provide a different level of return to the firm.Originality/valueThe slack resources hypothesis has been the least researched of the two hypotheses relating to the corporate social and financial performance (CSP and CFP) links. Although the slack resources hypothesis may explain the relation as well as the good management hypothesis, most studies tend to focus on the first one, basing their argumentation on the assumption that superior CFP comes as a result of a strategic CSP.