The Local Roots of Corporate Social ResponsibilityJ Bus Ethics


Najah Attig, Paul Brockman
Economics and Econometrics / Business, Management and Accounting (all) / Business and International Management / Law


The Local Roots of Corporate Social Responsibility

Najah Attig1 • Paul Brockman2

Received: 30 August 2014 / Accepted: 3 July 2015  Springer Science+Business Media Dordrecht 2015

Abstract We provide new evidence that the prosocial attitudes of local residents play a significant role in determining a firm’s corporate social responsibility (CSR) engagement. We show that firms are more likely to engage in CSR initiatives when they are headquartered in areas with large senior citizen populations and where a large fraction of the population makes charitable donations. In contrast, we find that firms are less likely to engage in CSR initiatives when they are headquartered in areas with large religiously affiliated groups. After establishing the local demographic roots of CSR demand, we then examine the relationship between the firm’s CSR activities and its market valuation. Our results suggest that CSR initiatives create value when they are properly aligned with local residents’ prosocial attitudes. Overall, our study stresses the role of local residents’ CSR preferences in mediating the relationship between CSR and market valuations.

Keywords Social conformity  Corporate social responsibility (CSR)  Corporate valuation  Local residents  Philanthropy


Research on corporate social responsibility (CSR) continues to be an important contemporaneous area of interest for both academics and practitioners. For instance, a survey by

KPMG (2011) shows that the percentage of Fortune Global 250 firms that issues stand-alone CSR reports has increased from 52 % in 2005 to 80 % in 2008, and 95 % in 2011. In academia, CSR has produced a large body of knowledge that has evolved into two main lines of inquiry. A first line of inquiry, too vast for us to provide a comprehensive overview of herein, is confined to understanding the link between CSR and corporate financial performance. A second line of inquiry, still seeking to gather momentum, focuses on the antecedents of a firm’s CSR (e.g., Campbell 2007; Ioannou and Serafeim 2012; Husted et al. 2014;

Attig and Cleary 2014, among others). Our study contributes to this shift in the literature’s focus from the financial implications of CSR to the characterization of its determinants by investigating the extent to which the prosocial attitude of residents is associated with more social behavior by local firms.

Prosocial attitudes refer ‘‘to voluntary actions undertaken to benefit others, such as sharing, donating, caring, comforting, and helping’’ (Caprara et al. 2012, p. 1289). As a proxy of prosocial attitudes, we use the fraction of residents that makes charitable donations. We use this proxy because the prosocial behavior of a firm’s stakeholders is driven by their intrinsic altruism (Be´nabou and Tirole 2010). We focus on the prosocial attitude of households in the state in which the firm is headquartered because corporate headquarters are the center of information exchange between the firm and its investors and are close to corporate core business activities (Pirinsky and Wang 2006, and references therein). In particular, corporate social actions & Najah Attig

Paul Brockman 1 Sobey School of Business, Saint Mary’s University, Halifax,

NS B3H 3C3, Canada 2 Perella Department of Finance, College of Business and

Economics, Lehigh University, Bethlehem, USA 123

J Bus Ethics

DOI 10.1007/s10551-015-2757-3 are commonly directed to ‘‘the locales in which a corporation’s executives reside’’ (Marquis et al. 2007, p. 927).

We posit that firms are more likely to engage in CSR initiatives when they are located in geographic areas where a large fraction of the population favors prosocial behavior.

This contention is grounded in the matching that takes place between the local residents (and more broadly, stakeholders) preferring particular CSR activities and those firms that find it cost-efficient to implement them. The matching between a firm’s CSR initiatives and the prevailing social norms of local residents likely leads to more sustainable competitive advantage through gaining more committed stakeholders and a larger shareholder base.

Two recent studies are explicitly relevant to our work.

First, Kitzmueller and Shimshack (2012, p. 69) argue that

CSR initiatives are rooted ‘‘in social pressures and norms within geographic communities or functional entities.’’

Second, Husted et al. (2014) show that firms located close to financial centers exhibit more CSR engagement than those located in remote areas. The authors also find that

CSR engagement interacts with geographic location in shaping a firm’s cost of equity financing. Husted et al.’s (2014) evidence is particularly germane to the focus of our paper. Indeed, our work draws on Husted et al.’s (2014) insights on the relevance of firm geographic location in influencing CSR engagement. Our study, however, departs from Husted et al. (2014) in two main aspects. First, while they focus on the impact of geographic proximity to major cities and financial centers in shaping the firm’s CSR engagement, we focus on the impact of local residents’ prosocial behavior. Second, we investigate the impact of stakeholder demand in altering the link between CSR and corporate financial performance.

In this paper, we adopt Aguinis’ (2011, p. 855) definition of CSR as ‘‘context-specific organizational actions and policies that take into account stakeholders’ expectations and the triple bottom line of economic, social, and environmental performance.’’ As such, CSR refers to firms’ ‘‘actions that appear to further some social good, beyond the interests of the firm and that which is required by law’’ (McWilliams and Siegel 2001, p. 117). We are cautious in operationalizing this definition because CSR is difficult to measure directly (Carroll 1991). We use Kinder Lydenburg

Domini (KLD) data, which are drawn from MSCI ESG