The Power of Likes: The Role of Media Approval in the Relationship Between CSR and CFP

Abstract

An abundance of research examines the relationship between firms’ social and financial performance. Corporate social responsibility (CSR) research suggests that corporate social performance (CSP) elicits social approval, reflected in positive coverage in media that confers legitimacy and reputation. The media literature shows media approval increases stakeholder reciprocity, which translates to a higher level of CFP. Linking these streams of literature and drawing on stakeholder theory, we posit that social approval as reflected in media, mediates the relationship between a firm’s CSP and CFP by enabling the firm to benefit more from CSP to improve its CFP. More specifically, considering media’s selective coverage and the increasing scrutiny and contestability of higher levels of CSP, we propose that the relationship between CSP and media approval is nonlinear, such that the positive impact of CSP on increasing media approval is at a decreasing rate, and CFP is positively influenced by media approval. The curvilinear relationship between CSP and media approval flattens when firms’ top managers are found to be excessively wealthy, which we argue can change stakeholders’ expectations of the firm and thereby influence media approval. Our analysis of a panel data set of 1,809 Chinese publicly listed firms from 2012 to 2017 lends support to these arguments.