Is corporate social responsibility an entrenchment.pdf - Rev Manag Sci DOI 10.1007\/s11846-014-0120-1 ORIGINAL PAPER Is corporate social responsibility

Is corporate social responsibility an entrenchment.pdf -...

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ORIGINAL PAPER Is corporate social responsibility an entrenchment strategy? Evidence in stakeholder protection environments Jennifer Martı´nez-Ferrero Isabel-Marı´a Garcı´a-Sa ´nchez Received: 16 December 2013 / Accepted: 6 February 2014 Ó Springer-Verlag Berlin Heidelberg 2014 Abstract By using international data, we analyze the effect of managerial dis- cretion on socially responsible practices with the aim of demonstrating the use of corporate social responsibility (CSR) as an entrenchment strategy in order to con- ceal unethical behavior. The results confirm the positive relationship between managerial discretion and CSR. Therefore, by employing CSR, a company’s managers that employ poor accounting practices attempt to compensate stake- holders. We also demonstrate that institutional factors influence the above rela- tionship. Concretely, the entrenchment strategy is moderated by the stakeholder protection in the country of origin and CSR dimension analyzed. Keywords Managerial discretion ± Corporate social responsibility ± Stakeholder protection Mathematics Subject Classification 62 ± 07 1 Introduction This research has a double purpose. First, our aim is to analyze the possible existence of a CSR entrenchment strategy with the intention of masking previous managerial discretion. Secondly, we examine how the CSR entrenchment strategy covaries within iurrocanstitutional factors. J. Martı´nez-Ferrero ( & ) ± I.-M. Garcı´a-Sa ´nchez Facultad de economı´a y empresa, University of Salamanca, Edificio FES. Campus de Unamuno, 37007 Salamanca, Spain e-mail: [email protected] I.-M. Garcı´a-Sa ´nchez e-mail: [email protected] 123 Rev Manag Sci DOI 10.1007/s11846-014-0120-1
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On the one hand, managers’ discretionary behaviors are an underlying agency problem that enable managers to satisfy their own interests to the detriment of those of others, regardless of the potential damage not only to other stakeholders, but also to the company’s own financial performance should such practices continue for a prolonged time. In order to avoid the negative consequences of discretionary decision-making, managers may adopt corporate social responsibility (CSR) practices that satisfy the interests of different stakeholders. Meanwhile, these CSR practices aim to achieve a threefold impact—social, economic and environmental (Adams and Zutshi 2004 )—through the development of environmental protection systems and policies and the exercise of actions promoting relations with the community, customers or suppliers in order to benefit both the company and the diverse stakeholders that affect and are affected by it (Adams 2002 ; Waddock 2003 ). This responsible behavior aims to resolve the conflict of interests between shareholders and other stakeholders (customers, suppliers, workers, etc.). The clear benefits of a CSR strategy have resulted in a dramatic growth of CSR practices in the industry, but the suspicion of ‘green washing’ rather than wholehearted commitment to social responsibility remains. That is, the perception of different stakeholders varies depending on the CSR
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