"Walking the Walk vs. Talking the Talk: Socially Responsible Communications, Actions & Performance"

Abstract

Increasingly, companies find themselves being torn between fulfilling stakeholder demands and satisfying shareholder claims. How can they then effectively balance these divergent interests while being focused on the overarching “corporate objective” of creating firm value? Recent anecdotal evidence suggests that firms have been doing so through a combination of stakeholder-oriented “actions” and shareholder-oriented “communications.” To explore this phenomenon, we conceptualize social responsibility practices as socially responsible communications (SRCs) and socially responsible actions (SRAs). We show that SRCs are able to mitigate agency problems and significantly improve market performance, while SRAs are able to reduce transaction costs and significantly improve operational performance. Further, our analysis shows that absolute discrepancies between SRAs and SRCs lead to reduced market performance. On the other hand, positive discrepancies between the SRA-SRC relationship (i.e., over- delivering) lead to higher operational performance. Although the theoretical predictions and our empirical findings are in closer alignment for labor practices, they exhibit a divergent trend in the case of environmental practices. We identify important boundary conditions and explain the heterogeneity in our findings.