What Factors Drive MNEs’ CSR Practices? An Analysis of Subsidiary and Supplier Reputation Risk

Abstract

We analyze the drivers of corporate social responsibility (CSR) adoption in multinational firms. Building on internalization theory and the view of the multinational as a network, we argue that the reputation risk within the multinational’s portfolio of subsidiaries and suppliers determines its adoption of CSR. Specifically, we propose that multinationals facing higher internal (subsidiary) and external (supplier) reputation risk are likely to adopt more CSR practices, thereby preventing stakeholder backlash and protecting reputational advantages. We also propose that these relationships differ for state-owned firms, because they are created to promote social agendas like employment, public goods, and development. Hence, we argue that state-owned multinationals, in comparison to private ones, have a stronger CSR response to risk in their suppliers and subsidiaries. We find robust support for these ideas in an unbalanced sample of 726 multinationals from 40 home countries during 2008-2018.