Corporate social irresponsibility and profitability. The varieties of capitalism perspective

Abstract

Purpose The goal of the article is to identify the relationship between corporate social irresponsibility (CSI) and firm profitability. Using the varieties of capitalism (VoC) framework, it distinguishes between liberal market economies (LMEs) and coordinated market economies (CMEs) to explore the impact of country-level determinants on stakeholder salience. Design/methodology/approach Controlling for endogeneity and company-level characteristics, we analyze a sample containing a total of 3,500 firm-year observations from the United Kingdom, Germany, France, Italy, Poland and Spain. Findings In line with our theoretical model, the results reveal a negative association between CSI and firm profitability across the whole sample, with a more profound effect being observed for the LME case. The finding is supported in robustness tests controlling for country indicators and in GMM modeling. Research limitations/implications Responding to the calls for a better understanding of CSI's consequences, as well as recognizing institutional differences among European countries, we draw upon stakeholder theory and examine the consequences of CSI on firm profitability. We emphasize that the CSI-profitability link is dependent on the institutional environment, which determines stakeholder salience, possession of residual claims on profits or influence capacity. Practical implications The results suggest that policymakers may prevent companies from moving CSI-related operations into countries with lower stakeholder scrutiny. Originality/value Addressing the shortcomings of a one-dimensional approach to corporate social responsibility, we draw upon stakeholder theory and examine the consequences of CSI on firm profitability.