practices promoted by each company especially when their goal is masking a

Practices promoted by each company especially when

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practices promoted by each company, especially when their goal is masking a previous managerial discretion. According to Handelman and Arnold ( 1999 ), managers can promote CSR practices as a means of self-promotion and/or personal benefits rather than a discretionary activity that goes beyond their or the company’s own welfare. Cespa and Cestone ( 2007 ), Prior et al. ( 2008 ) and Gargouri et al. ( 2010 ) showed that companies that indulge in earnings management (EM) behavior are more likely to carry out discretionary ethical and social practices in order to secure their jobs and increase compensation and to obtain the support of stakeholders. In this sense, CSR could be viewed as a managerial entrenchment strategy to meet the demands of different stakeholders. On the other hand, specifically, a country’s business culture, and in particular whether a country is more stakeholder-oriented, can influence the importance of CSR issues in business operations at the country level (Williams and Aguilera 2008 ; Dhaliwal et al. 2011 ). In a stakeholder-oriented business culture, a broad spectrum of stakeholders are seen by society as possessing a legitimate interest in corporate activities and have higher legitimacy in influencing corporate activities and performance than in other environments (Agle et al. 1999 ; Chen and Bouvian 2009 ). Thus, CSR practices are more observed, and stakeholders have available higher information on how well firms handle issues related to different interest groups, while managers have lower margins to entrenchment themselves. We predict that the positive association between managerial discretion and CSR is less pronounced in countries that are more stakeholder-oriented. Our empirical analysis is based on a large sample of international listed companies from 23 countries including the administrative region of Hong Kong and covers the period 2002–2010. We use the Arellano and Bond ( 1991 ) generalized method of moments (GMM) estimator on the panel data to analyze the effect of managerial discretion on CSR strategy. As a result of this analysis we found J. M. Ferrero, I. M. G. Sa ´nchez 123
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evidence supporting our hypotheses. Concretely, our results conclude that CSR practices can be promoted as an entrenchment strategy by companies whose main purpose lacks business ethics. Specifically, the aim masked by the economic, social and environmental CSR practices prevents the detection of previous managerial discretion, thereby avoiding the negative consequences of it. Therefore, we conclude that CSR acts as a managerial entrenchment mechanism to mask previous unethical behavior. However, this entrenchment is tempered by certain institutional and cultural factors that affect not only companies but also different stakeholders. In particular, the results of our research argue that such an entrenchment strategy based on CSR practices is moderated by the level of stakeholder protection in the country of origin of the company.
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  • Spring '20
  • Amanullah
  • Business Ethics, Corporate social responsibility, J. M. Ferrero, M. G. Sa´nchez, NCRI

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