The Foundations of Corporate Social Responsibility (replaced by CentER DP 2014-069)

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Abstract

Abstract: We investigate the roles of legal origins and political institutions – believed to be the fundamental determinants of economic outcomes – in corporate social responsibility (CSR). We argue that CSR is an essential path to economic sustainability, and document strong correlations between country-level sustainability ratings and various extensive firm-level CSR ratings with global coverage. We contrast the different views on how legal origins and political institutions affect corporations’ tradeoff between shareholder and stakeholder rights. Our empirical evidence suggest that: (a) Legal origins are more fundamental sources of CSR adoption and performance than firms’ financial and operational performance; (b) Among different legal origins, the English common law – widely believed to be mostly shareholder-oriented – fosters CSR the least, (c) Within the civil law countries, firms of countries with German legal origin outperform their French counterparts in terms of ecological and environmental policy, but the French legal origin firms outperform German legal origin companies in social issues and labor relations. Companies under the Scandinavian legal origin score highest on CSR (and all its subfields); (d) Political institutions – democratic rules and constraints to political executives – are not preconditions for CSR and sustainability, and sometimes even hinder CSR implementation. Our results are robust after controlling for corporate governance, culture, firm-level financial performance and constraints, and different indices of political institutions.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages51
Volume2013-071
Publication statusPublished - 2013

Publication series

NameCentER Discussion Paper
Volume2013-071

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Keywords

  • Corporate social responsibility
  • sustainability
  • legal origins
  • political institutions
  • shareholder orientation
  • stakeholder orientation

Cite this

Liang, H., & Renneboog, L. D. R. (2013). The Foundations of Corporate Social Responsibility (replaced by CentER DP 2014-069). (CentER Discussion Paper; Vol. 2013-071). Tilburg: Finance.