The Evolution of Business Groups’ Corporate Social Responsibility

Abstract

I analyze business groups’ corporate social responsibility (CSR). Building on economic thinking, I propose that the diversity of CSR activities of business groups evolves with the level of development of the country, as the result of the interaction of two influences: the level of infrastructure deficiencies and the cost of negative externalities. Thus, I argue that in underdeveloped countries, business groups have higher levels of diversity of CSR activities, especially in the social arena, to compensate for infrastructure deficiencies. As countries implement pro-market reforms and become emerging economies, business groups’ CSR diversity diminishes as they are able to rely on external providers and the government for supporting infrastructure. As countries further grow to become advanced economies, business groups CSR diversity increase to ameliorate the increasing cost of negative externalities. I further explain how firm, industry and country characteristics modify these relationships.