Doing Well While Doing Bad? CSR in Controversial Industry Sectors

• Published in: Journal of business ethics Vol. 108; no. 4; pp. 467 - 480
• Main Authors: Cai, Ye, Jo, Hoje, Pan, Carrie
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer 01.07.2012; Springer Netherlands; Springer Nature B.V
• Series: Journal of Business Ethics
• Subjects: Alcohol; Associations; Book value; Business and Management; Business Ethics; Business structures; Business valuation; Controversial industry sectors; Corporate responsibility; Corporate social responsibility; Corporate strategies; Defense industries; Economic value; Education; Ethics; Firm value; Gambling; Hypotheses; Hypothesis; Hypothesis testing; Industrial sectors; Industry; Management; Morality; Organizational effectiveness; Philosophy; Quality of Life Research; Regression analysis; Senior management; Social responsibility; Society; Studies; Tobacco industry; United States; Value enhancement; Window dressing; United States > US; Controversial industry sectors; Corporate social responsibility; Firm value; Value enhancement; Window dressing
• ISSN: 0167-4544; 1573-0697
• DOI: 10.1007/s10551-011-1103-7

In this article, we examine the empirical association between firm value and CSR engagement for firms in sinful industries, such as tobacco, gambling, and alcohol, as well as industries involved with emerging environmental, social, or ethical issues, i.e., weapon, oil, cement, and biotech. We develop and test three hypotheses, the window-dressing hypothesis, the value-enhancement hypothesis, and the value-irrelevance hypothesis. Using an extesive US sample from 1995 to 2009, we find that CSR engagement of firms in controversial industries positively affects firm value after controlling for various firm characteristics. To address the potential endogeneity problem, we further estimate a system of equations and change regression and continue to find a positive relation between CSR engagement and firm value. Our findings support the value-enhancement hypothesis and are consistent with the premise that the top management of US firms in controversial industries, in general, considers social responsibility important even though their products are harmful to human being, society, or environment.