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Beyond Warm Glow: The Risk-Mitigating Effect of Corporate Social Responsibility (CSR)

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Abstract

Corporate social responsibility (CSR) positively impacts relationships between firms and customers. Previous research construes this as an outcome of customers’ warm glow that results from supporting firms’ benevolence. The current research demonstrates that beyond warm glow, CSR positively impacts firms’ sales through mitigating their customers’ perceptions of purchase risk. We demonstrate this effect across three conditions in which customers’ perceived risk of purchase is heightened, using both secondary data and two lab experiments. Under conditions of greater purchase risk (i.e., recessions, a service context, and longer-term consumer commitments), CSR positively impacts both sales and customer purchase intentions to a greater extent than in conditions of lower purchase risk. In addition to measuring purchase risk as the mediating process behind these effects, we demonstrate that the effect of CSR on sales is stronger for those CSR activities that signal a stakeholder orientation.

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Notes

  1. Benevolence may be defined as the preservation and enhancement of the welfare of people (Schwartz and Bardi 2001).

  2. We do not imply that firm sales increase during recessions. Rather it is the effect of CSR on sales (i.e., the effect size of CSR) that increases during that time.

  3. We also used market share as an alternate outcome of interest and show that our results are robust. We thank an anonymous reviewer for this helpful suggestion.

  4. Post hoc tests based on individual CSR groups revealed that only product, environment, and community engagement CSR categories were significant. Both product and environment-related CSR showed a significant interaction with recessions, while all three were significant during non-recessionary periods. In combination, the three non-significant categories of PO-CSR (i.e., employee relations, corporate governance, and diversity) also showed a small, but still significant, effect.

  5. The effect of benevolent CSR is, however, only marginally significant (i.e., at p < 0.1), implying a partial mechanistic pathway through benevolence as well.

  6. Casado-Diaz et al. (2014) had previously found that CSR differentiates a firm more in a services context. However, they look at it from a stock market perspective wherein the stakeholder of interest is the shareholder and not the customer. Further, they do not distinguish between the twin mechanisms of benevolence and risk reduction.

  7. We also test this relationship using secondary data (see Table 6 in Appendix 5) and obtain similar results.

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Authors and Affiliations

  1. Faculty of Economics and Business, University of Groningen, Duisenberg Bldg., Nettlebosje 2, Groningen, NL, 9700 AK, The Netherlands

    Abhi Bhattacharya

  2. Eli Broad College of Business, Michigan State University, 632 Bogue St, East Lansing, MI, 48825, USA

    Valerie Good

  3. Coggin College of Business, University of North Florida, Building 42, Room 3407, Jacksonville, FL, USA

    Hanieh Sardashti

  4. Gatton College of Business and Economics, University of Kentucky, Lexington, KY, 32306-1110, USA

    John Peloza

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  1. Abhi Bhattacharya
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  2. Valerie Good
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  4. John Peloza
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Correspondence to John Peloza.

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Appendices

Appendix 1

See Table 5.

Table 5 KLD categories
Full size table

Appendix 2: Robustness Checks (Study 1)

Model-Free Evidence

We performed a series of robustness checks to ensure the validity of our results. First, we obtained model-free evidence to test the validity of our findings and data. We observed that the average difference in advertising spending between recessionary and non-recessionary years was (−) $52.15 million. These data are consistent with the past literature (e.g., Srinivasan et al. 2011) that found that firms will reduce advertising spending during recessions. The average growth in advertising expenses during non-recessionary periods is $17.99 million. Interestingly, we found that mean growth in CSR scores is practically non-existent during recession (0.01) compared to periods of GDP growth (0.15). We also found that the correlation between CSR and sales is stronger during recession (0.40) than it is during non-recession (0.34).

Alternate Measure of Performance

Since signaling theory can be argued to explain the shifts in market preferences, we also estimate the model using market share (relative sales within an industry) instead of absolute sales. Market share is the percentage of an industry or a market’s total sales that is earned by a particular firm over a specified time (e.g., Ferrier et al. 1999). To measure market share, we simply take the ratio of the sales of a single firm to the total sales of all firms within its industry, wherein industry definitions use SIC (Standard Industry Classification) codes at the 4-digit level. As seen in Table 7 in Appendix 6, the results in this instance are quite similar.

Bayesian Estimations

Third, we fit a panel Bayesian model to estimate our parameters of interest. Bayesian analysis provides inferences that are conditional based on the data and are exact, without having any reliance on asymptotic approximation. Small sample inference proceeds in the same manner as if one had a large sample (McNeish 2016). Since we only observed two years of recession (resulting in a smaller sub-group of firm-recession years), we checked the robustness of our inferences using a hierarchical Bayesian model. Following Ruppert et al. (2003), we fit a hierarchical Bayes random-intercept model using a Gibbs sampling algorithm to our longitudinal panel data set. The more efficient MCMC procedure for our Bayesian model was the Gibbs sampling compared to Metropolis–Hastings (MH). In keeping with standard Bayesian hierarchical modeling (e.g., Rossi et al. 2012), we utilized uninformed priors to estimate the coefficients using the following prior structure. We used normal priors for the regression coefficients and group levels identified by the ID variable (gvkey) and inverse-gamma priors for the variance parameters. We further noted from post-estimates that autocorrelation was not a concern and that our MCMC procedure had converged with an efficiency of 48%. The estimates of posterior means and posterior standard deviations are similar to the estimates and standard errors determined from our random-effects model, providing an enhanced confidence in our results.

Missing Values

Fourth, we used additional methods to account for missing values in advertising or R&D spending other than list-wise deletion. Following Ivanov et al. (2013), we set advertising and R&D expenses to zero if it was missing or not reported in COMPUSTAT. Since Generally Accepted Accounting Principles (GAAP) require all firms with “material” R&D or advertising expenditures to recognize and disclose these items in their financial statements, ours was a reasonable assumption to make, and. we did not observe any substantive changes to our core results.

Future Performance

Finally, we estimated our parameters using one period lagged CSR (and other IVs). This may partially account for the reverse causality (which should, however, have been addressed through our use of Gaussian copulas) as well as allow us to observe whether there is a longer-term impact of CSR (or whether the effect of CSR on performance requires some time to take place). We still found the substantial conclusions to remain unchanged.

Appendix 3: Materials for Study 2A and Study 2B

Study 2A

Goods/CSR

Nature's Bounty is opening its doors in a location here in {location}! The grocery store is part of a small, regional chain that has operated in some neighboring states for several years, and then recently decided to make the move into {location}. The store will offer a full range of groceries and other products, including fresh produce, meat, dairy and a bakery with fresh baked goods produced every morning. The store will be located close to campus in order to address what the store manager, Chad Green, feels is an underserved market. "The student population doesn't have a lot of choices at the moment. We aim to bring in a new attitude and standard of service and we think customers will be very happy with our store."

As part of the approach to any store opening, the retailer makes an effort to become a contributing member of the community. The store will donate a percentage of each sale to a local charity, and it was recently ranked among the top 100 companies to work for in the country. Green explains, "Social responsibility is part of our DNA. We want our customers, employees and other partners to feel good about doing business with us and our investment in communities is a big part of that."

Service/No CSR

Nature's Bounty is bringing its service to {location}! The online grocery delivery service has operated in some neighboring states for several years, and recently decided to make the move into {location}. The service will offer a full range of groceries and other products including fresh produce, meat, dairy and a bakery with fresh baked goods made every morning. The company will deliver to the campus area to address what store manager Chad Green feels is an underserved market. "The student population doesn't have a lot of choice at the moment. We aim to bring in a new attitude and standard of service and we think customers will be very happy with our store."

Study 2B

New You Fitness is now open in {location}. It’s more than a gym. The New You approach is a science-based, technology-driven path to personal health. Built from the inside out, it considers the entire range of habits that comprise a healthy lifestyle. High quality, modern facilities, and equipment combined with an expert staff will give you just what you need to get into shape. You’ll have access to a range of fitness classes including pilates, cycling, yoga, interval training, cross-fit and more, all in a fitness program that is tailored to meet your personal health goals.

Short-Term

As part of their new opening, New You Fitness is offering {school} students as special new year discount. You can try New You for month for only $19. That’s a big discount off the normal monthly rate. After that, you can decide if you want to purchase a membership and choose from one of our member packages.

Longer Term

As part of their new opening, New You Fitness is offering {school} students as special new year discount. You can try New You for 1 year for only $219. That’s a big discount off the normal yearly rate. After that, you can decide if you want to purchase a membership and choose from one of our member packages.

Appendix 4: Measures for Study 2A and Study 2B

Performance Expectations (adapted from Boulding and Kirmani (1993); α = 0.94):

Considering Nature’s Harvest compared to other options, I expect the company to provide… (1 = much lower than average; 7 = much higher than average).

  • Quality

  • Reliability

  • Dependability

Risk (adapted from Laroche et al. (2004): α = 0.85):

When I think about buying from Nature’s Harvest…. (1 = strongly agree; 7 = strongly disagree).

  • There is a good chance a mistake will be made

  • The purchase will cause me problems

  • The purchase is risky

Benevolence (adapted from Ellen et al. (2006): α = 0.93):

Nature’s Harvest is… (1 = strongly agree; 7 = strongly disagree).

  • A company that truly cares for people

  • A company that puts the interests of others first

  • A company with a heart

    Trial Intentions (White and Peloza (2009): α = 0.96):

    The gym is scheduling an Open House to give people a chance to tour their facility and meet some of the staff. How likely would you be to go visit the gym during that Open House?

  • Highly unlikely/highly likely

  • Highly unwilling/highly willing

  • Highly not inclined/highly inclined

Appendix 5

See Table 6.

Table 6 Effects of CSR on services
Full size table

Appendix 6

See Table 7.

Table 7 Effect of CSR on market share during recessions
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Bhattacharya, A., Good, V., Sardashti, H. et al. Beyond Warm Glow: The Risk-Mitigating Effect of Corporate Social Responsibility (CSR). J Bus Ethics 171, 317–336 (2021). https://doi.org/10.1007/s10551-020-04445-0

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