How corporate social responsibility information influences ...

Corporate Social Responsibility and Environmental Management Corp. Soc. Responsib. Environ. Mgmt. 18, 234–245 (2011) Published online 10 September 2010 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/csr.245

How Corporate Social Responsibility Information Influences Stakeholders’ Intentions Umit Alniacik,* Esra Alniacik and Nurullah Genc Kocaeli University, Izmit, Kocaeli, Turkey

ABSTRACT The study shows how positive and negative information on corporate social and environmental responsibility influences purchase, employment, and investment intentions of various stakeholders. We manipulated the information on corporate social responsibility (CSR) activities of a hypothetical firm in a between-subjects experimental design. The design had two treatments. In the ‘positive CSR’ treatment, the company’s social and environmental performance was described in a positive perspective (depicting a strong social performance), whereas in the ‘negative CSR’ treatment it was described in a negative perspective (depicting a weak social performance). In both treatments, information about other key characteristics of the focal company were kept constant. Respondents’ intentions to purchase products from, seek employment with, and invest in the company were evaluated by multi-item scales. The results demonstrate that positive CSR information about a firm enhances consumers’ intentions to purchase products from, potential employees’ intentions to seek employment with, and potential investors’ intentions to invest in the company. Theoretical and managerial implications of the findings are discussed. Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment. Received 21 April 2010; revised 10 July 2010; accepted 20 July 2010 Keywords: corporate social responsibility; environmental responsibility; stakeholders; purchase intentions; employment intentions; investment intentions; experimental study

Introduction

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50 YEARS, A GREAT DEAL OF EFFORT HAS BEEN SPENT IN RESEARCHING THE BUSINESS-SOCIETY relationship. A considerable amount of this work has focused on the responsibilities corporations have to society. The term ‘social responsibility’ was first formalized by Bowen (1953) in his seminal book Social Responsibilities of the Businessman. A decade later, Keith Davis broadened the scope of the concept to include institutions and enterprises. He asked two crucial questions: Can business afford to ignore its social responsibilities? (Davis, 1960); What does the businessperson owe to society? (Davis, 1967). Since then, there has been an ever growing interest in the issue of corporate social responsibility (CSR). Today, CSR is widely recognized as a strategic tool that enables firms to gain a competitive advantage (Drucker, 1984; Porter and van der Linde, 1995; Shrivastava 1995; Porter and Cramer, 2006). There is a rich literature on VER THE PAST

* Correspondence to: Umit Alniacik, Kocaeli University, Faculty of Communications, Department of Advertising, Umuttepe Kampusu, Izmit, Kocaeli, Turkey 41380. E-mail: [email protected] Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment

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the positive relationship between social performance and business performance (Cochran and Wood, 1984; Pava and Krausz, 1996; Waddock and Graves, 1997; Stanwick and Stanwick, 1998; Orlitzky et al., 2003). Although this research mostly originates from Anglo-Saxon countries – mainly the USA and the UK – it is important to understand whether CSR activities are also valued in other country contexts, particularly in developing countries. Thus, this paper aims to examine how a company’s social performance affects (1) customers’ intentions to purchase goods and services from the company; (2) prospective employees’ intentions to seek employment with the company; and (3) potential investors’ intentions to invest in the company. For this aim, we conducted an experimental study on university students. Our main contribution is to provide experimental evidence on how the information on social responsibility affects the intentions of a company’s different stakeholders, (i.e. customers, employees, and investors). Besides, studying the concept of CSR in a developing country may provide worthy implications. Hence, the paper begins with a literature review. Following the literature review, experimental methodology and data analysis are presented. The paper then finishes with concluding remarks and research implications.

Literature Review Conceptual Definition of CSR Although its roots go back to the early twentieth century, the modern concept of CSR has evolved since the 1950s, formalized in the 1960s, and proliferated in the 1970s (Carroll, 1999). While many authors have tried to give a full definition to CSR, an exact definition is elusive and yet to be obtained (Dahlsrud, 2008). There are two main schools of thought about the responsibilities of corporations. According to the shareholder view, the only responsibility of a business is maximizing its profits within the boundaries of the law (Levitt, 1958; Friedman, 1970). Friedman and his followers object to the wider definition of corporate social responsibilities by arguing that the pursuit of social goals dilutes the primary purpose of the corporation, imposes additional costs, and reduces economic efficiency, competitiveness, and profitability. According to Friedman, shareholder value is the only value to be maximized. If managers want to work toward the betterment of the society, they should do so as private individuals at their own expense, not as agents of their principals and at their principals’ expense (Friedman, 1970). On the other hand, the stakeholder view takes a broader scope of business responsibilities toward society. Freeman’s (1984) stakeholder theory posits that a corporation is composed of stakeholders that have, or claim, ownership, rights, and interests in a corporation and its activities. Under this framework, anyone who might affect the business objective and anyone who might be affected by its realization are considered to be stakeholders. A corporation’s business activities may affect directly or indirectly the well-being of many stakeholders including shareholders, employees, customers, suppliers, local communities, natural environment, government, and general society. Each stakeholder group has expectations of the corporation. The corporation’s reactions to these expectations are critical to its current and future success. It is widely accepted that the impact of corporate activity upon society and its citizens, as well as all stakeholders including the environment, is considerable and impacts not just the present but also the future (Aras and Crowther, 2008). Therefore, socially responsible companies must be managed according to the stakeholder theory (Mohr and Webb, 2005). A socially responsible company must consider the effects of its actions on every entity that may be directly or indirectly affected by the company. Socially responsible behavior includes a broad range of activities such as treating customers, employees, and business partners fairly; supporting societal causes; protecting and improving the natural environment; and so on. In this respect, CSR is a broad term that has been defined in various ways. Academics and practitioners have been striving to establish a universally accepted definition of the concept for over 30 years. A broad conceptualization was made by Davis and Bloomstrom (1975, p.6) as ‘the managerial obligation to take action to protect and improve both the welfare of society as a whole and the interest of organizations’. Later, numerous authors proposed a wide array of definitions. Among others, Carroll’s definition depicting the four basic categories of CSR enjoyed wide popularity: ‘The social responsibility of business encompasses the economic, legal, ethical and discretionary expectations that society has of organizations at a given point of time’ (Carroll, 1979). Later, he revised this definition and proposed a three-domain model depicting economic, legal, and ethical responsibilities (Schwartz and Carroll, 2003). Another influential definition made by Mohr et al. (2001) states: ‘CSR is a company’s commitment to Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment

Corp. Soc. Responsib. Environ. Mgmt. 18, 234–245 (2011) DOI: 10.1002/csr

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minimizing or eliminating any harmful effects and maximizing its long-run beneficial impact on society.’ Similar to the diversity in construct definition, there are different opinions on the effects of CSR on business performance and on stakeholder responses.

CSR and Financial Performance A considerable amount of academic research was pursued to identify the possible relationship between corporate social performance and financial performance (Cochran and Wood, 1984; Aupperle et al., 1985; McGuire et al., 1988; Pava and Krausz, 1996; Waddock and Graves, 1997; Balabanis et al., 1998; McWilliams and Siegel, 2000; Orlitzky et al., 2003). These studies revealed equivocal results. In a review of 80 studies, in which corporate socially responsible business activities (i.e. environmental practices, community support, philanthropy, labor practices) were treated as causal antecedents of financial performance (measured as profit growth, return on investment, earnings per share growth, market performance, and stock performance), Margolis and Walsh (2001) found that 53% of these studies documented a positive relationship, 24% found no significant effect, 5% showed a negative effect, and 19% produced mixed results. Stanwick and Stanwick (1998) also reviewed the studies that examine the effects of CSR on financial performance and concluded that there is a weak but positive relationship.

CSR and Stakeholder Responses Organizations have social responsibilities because their activity affects the well-being of society and the external environment. Besides, a growing number of polls, commercial reports, and academic research indicate the positive effects of CSR on business performance and stakeholder responses. According to Cone’s Cause Evaluation Survey, 83% of Americans say that companies have a responsibility to help support societal causes; 92% have a more positive image of a company that supports a cause they care about; and 87% are likely to switch from one product to another (price and quality being equal) if the other product is associated with a good societal cause (Cone, 2007, p. 7). More than two-thirds (69%) of Americans say they consider a company’s business practices (such as impact on the environment, treatment of employees, and financial transparency) when deciding what to buy. Further, it is found that 72% of Americans want their employers to do more to support causes or social issues. The top four issues Americans want corporations to address are health, education, environment, and economic development (Cone, 2007, p. 15). Poll results also show that people tend to punish irresponsible companies: 85% of Americans would consider switching to another company’s products or services because of a company’s negative corporate responsibility practices; 79% would refuse to invest in a company’s stock; 77% would refuse to work at a company; 74% would consider selling an investment in a company’s stock; 66% would boycott a company’s products or services; and 66% would be less loyal to their jobs (Cone, 2007, p. 19) A number of academic studies also indicate a positive relationship between a company’s CSR actions and consumers’ purchase intentions and attitudes toward that company. For example, Murray and Vogel (1997) found that CSR actions significantly predict purchase intentions. Creyer and Ross (1997) determined that consumers’ purchase intentions were related to whether the company’s ethics record exceeded their expectation. In an experimental study, where the level of a hypothetical company’s philanthropy and employee involvement in the community was manipulated, Brown and Dacin (1997) found that CSR actions affected consumers’ overall evaluation of the company, which in turn affected their preference for new products. In an another experimental study, where corporate credibility (in terms of the company’s community and environmental contributions) was manipulated, Lafferty and Goldsmith (1999) indicated that corporate credibility had a significant effect on attitudes toward the brand and purchase intent. Auger et al. (2003) found that consumers expressed willingness to pay more for ethically made products. Bhattacharya and Sen (2003) argued that consumers who identify with companies are more likely to be loyal to those companies, and to communicate positively by word of mouth. Results of Mohr and Webb’s (2005) study indicate that CSR in environment and philanthropic domains had a positive impact on company evaluations and purchase intentions. A study by Wahba (2008) demonstrated that the market compensates those firms that care for their environment, as environmental responsibility exerted a positive and significant coefficient on the firm’s market value measured by Tobin’s q ratio. However, some others found that CSR activities are not Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment



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always directly related to consumer purchase intentions. The effectiveness of CSR activities may vary depending on the perceived motivation of the CSR (Barone et al., 2000; Ellen et al., 2000). Prior research also suggests that ‘negative CSR associations can have a detrimental effect on overall product evaluations, whereas positive CSR associations can enhance product evaluations’ (Brown and Dacin, 1997). Consumers are more sensitive to negative CSR information about a company than positive CSR information (Sen and Bhattacharya, 2001). As is seen from the existing literature, there is a positive relationship between a company’s CSR activities and consumer intentions to purchase the company’s products. In order to examine the generalizability of such findings in a developing country context, we developed the following hypothesis: Hypothesis 1: Positive CSR information will be associated with a greater intention to consume a company’s products compared to negative CSR information. The effects of CSR activities on other stakeholders’ responses are also examined by academic researchers. Murray and Vogel’s (1997) study revealed that managers are more willing to consume from a company after exposure to information about its CSR efforts. In another survey, research amongst environmental managers of UK firms by Collison et al. (2003) documented that there was broad agreement that external stakeholders attached importance to environmental communications. Research by Turban and Greening (1997) and Greening and Turban (2000) documented that job applicant and employee perceptions of a firm’s CSR affect how attractive these individuals perceive the firm to be. Employee attitudes and behaviors are heavily influenced by fairness of organizational actions toward them (Cropanzano et al., 2001). Individuals who value CSR exhibit less tolerance of counterproductive behaviors (Viswesvaran et al., 1998). It is also argued that employees’ perceptions of CSR impact their subsequent emotions, attitudes, and behavior mediated by instrumental, relational, and deontic motives/needs, as well as moderated by organizations’ social accounts (Rupp et al., 2006). A field experiment by Sen et al. (2006) revealed that awareness of a company’s CSR is associated with a greater intention to (1) consume the company’s products; (2) seek employment with the company; and (3) invest in the company. In this perspective, we developed the following hypothesis in order to check the generalizability of a positive relation between CSR and employment intentions, in a developing country context: Hypothesis 2: Positive CSR information will be associated with a greater intention to seek employment with a company compared to negative CSR information. From the investors’ perspective, CSR activities are questionable for many reasons. One may argue that investors have countervailing concerns because while they want to invest responsibly, they also want and need good returns. A typical question asked by investors is: Does higher CSR translate to higher sales and profits or is it a dead-weight cost? If CSR activities are assumed to be associated with significant costs, those firms may become uncompetitive and forego profits. On the other hand, companies with a positive reputation for CSP may develop more loyal customers, employees, and suppliers, thus leading to higher profits (Brown, 1997). Research examining the effect of CSR on investor behavior is relatively scarce. In an earlier study, Teoh and Shiu (1990) found that if social responsibility information were presented in quantified, financial form, and were focused on product improvement and fair business practices, such information would be perceived as more important for investment decisions. Graves and Waddock (1994) identified a positive link between institutional investors’ stock preferences and socially responsible organizations and suggested that this preference was due in part to the long-term performance of the investment. Valor et al. (2009) found that 40% of respondents in their sample reported that they would invest ethically if returns were only slightly lower and 7.5% reported that they were willing to invest ethically even if returns were significantly lower than the average. Using a case study method, Petersen and Vredenburg (2009) found that institutional investors favored holding shares in companies that engaged in CSR. Mackey et al. (2007) assert that the opportunity to invest in a firm engaging in socially responsible activities is a ‘product’ firms sell to current and potential investors. CSR activities may develop goodwill capital that might also serve as a risk-reducing factor for the firms. Corporations with a poor CSR record might be expected to be more susceptible to adverse government actions (fines and lawsuits), or to drastic reductions in income due to sudden societal forces in the Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment


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product/service marketplace, caused by disclosure of corporate wrong-doing or of a major industrial or environmental accident (Brown, 1997). Thus, we developed the following hypothesis in order to check the generalizability of a positive link between CSR and investor intentions, in a developing country context: Hypothesis 3: Positive CSR information will be associated with a greater intention to invest in a company compared to negative CSR information. The literature review exerts that the concept of CSR and most of the empirical work on the topic originate from developed countries, mainly the US and the UK. Further, a vast majority of the academic research is focused on the effects of CSR on market performance and consumer responses. Research pursuing the effect of CSR on other key stakeholders (i.e. employees, investors, and suppliers) is relatively scarce. The main objective of this study is to add to the existing literature by considering the effects of CSR on consumer, employee, and investor reactions in a developing country context. For this very reason, we conducted an experimental study as described in the next section.

Methodology Experimental Design and Procedure A single factor between subjects experimental design consisting of two treatment levels was used in this study. The experimental factor was the information about a hypothetical company’s CSR activities which was manipulated by a short story. The short story described Company XYZ that was functioning in the consumer electronics industry. The consumer electronics sector was chosen because its products (e.g. cell phone, mp3 player, TV, notebook, PC, DVD player) were commonly used by the subject population (83% of the respondents reported that they were active users of at least one consumer electronics product); it is a dynamic and improving sector; and it is not gender specific. The research instrument was a paper questionnaire, which had the short story on one side, and the relevant questions on the other side. Two versions of the short story were produced for generating the experimental conditions. In the first version, the company’s social performance was described in a positive perspective (depicting a strong social performance); other key characteristics (i.e. product and service quality, management efficiency, financial records, and workplace environment) were also storied in a positive manner. In the second version, the company’s social performance was described in a negative perspective (depicting a weak social performance), while the key characteristics were storied in the same positive manner. Information on the CSR activities is placed at the end of the story in both versions (see Appendix). A total of 250 undergraduate students studying at various departments of two Turkish universities participated in this study as part of classroom activities. University students were used because they are not only active users and potential customers of consumer electronics but also prospective employees and investors in the industry. The mean age of subjects was 21 years (SD = 1.6); 50.4% were female. Experiments were done in groups of 40 to 80 students. In each group, subjects were randomly assigned to either experimental conditions. Experiments were conducted by research assistants, who gave short explanations to the participants before the procedure. The explanation did not convey the real purpose of the experiment. Instead, participants were told that the purpose was to understand their level of interest in the consumer electronics sector. Subjects were asked to read through the story at their own pace. After reading the story, they completed post-test measures and manipulation checks.

Measures The subjects’ intentions to buy products from the focal company were assessed with 5 Likert type scales, derived from the Behavioral Intentions Battery (Zeithaml et al., 1996). They were instructed by the following sentence: ‘Assume that you need to buy consumer electronics products. To what extent you agree or disagree with the following statements about buying the products of Company XYZ?’ Subjects’ intentions to work for the focal company Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment



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were assessed with another 5 Likert type scales adopted from Sen et al. (2006), and the Organizational Commitment Questionnaire (Porter et al., 1974). They were asked: ‘To what extent you agree or disagree with the following statements about working for a company like XYZ, after your graduation?’ Subjects’ intentions to invest in the focal company were assessed with 4 Likert type scales adopted from Sen et al. (2006) and Helm (2007). They were instructed as follows: ‘Assume that you have a considerable amount of savings, and you are planning to make some investment. To what extent do you agree or disagree with the following statements about investing in a company like XYZ?’ Level of agreement or disagreement with all scale items were reported on five-point scales, ranging from 1 = Completely Disagree to 5 = Completely Agree. In order to check the effectiveness of the manipulations, two direct questions were asked at the end of the questionnaire. Subjects were asked to assess (1) Company XYZ’s level of social responsibility; and (2) the overall reputation of Company XYZ, by giving 0 to 10 points (a higher rank meant a better assessment). They were warned to make their assessments merely based on the short story they had read.

Data Analyses Manipulation Checks An independent-samples t-test was performed on the manipulation check questions to verify if the respondents rated the level of CSR and overall reputation of Company XYZ differently in the alternative experimental conditions. The mean rating of the level of CSR in the positive CSR condition was 8.60 (SD = 1.51) whereas it was 3.46 (SD = 3.12) in the negative CSR condition. There was significant difference between the ratings, t (244) = 16.405, p < .01. The mean rating of the perceived overall reputation of Company XYZ in the positive CSR condition was 8.72 (SD = 1.39) whereas it was 7.23 (SD = 1.66) in the negative CSR condition. There was significant difference between the ratings, t (244) = 7.615, p < .01. The results indicated that the experimental manipulation was successful.

Evaluation of Dependent Measures Factor and reliability analyses were carried out to examine the dimensionality and reliability of the dependent measures. Intentions to buy the company’s products were measured by using a five-item scale. Scale dimensionality was assessed by exploratory factor analysis. A principal components analysis suggested a single factor which explained 43.9% of the total variance (eigenvalue: 2.19). KMO measure of sampling adequacy is calculated as .748. All of the scale items were loaded on the unrotated factor (loadings ranged from .79 to .48). Thus, a composite measure was created by averaging the responses on the five items. The composite variable was named as ‘purchase intentions’. Scale reliability was assessed by internal consistency using Cronbach’s Alpha coefficient, which was calculated as .67. Intentions to work for the company were measured by using a five-item scale. Scale dimensionality was assessed by exploratory factor analysis. A principal components analysis suggested a single factor which explained 60.1% of the total variance (eigenvalue: 3.00). KMO measure of sampling adequacy is calculated as .814. All of the scale items were loaded on the unrotated factor (loadings ranged from .86 to .72). Thus, a composite measure was created by averaging the responses on the five items. The composite variable was named ‘employment intentions’. Scale reliability was assessed by internal consistency using Cronbach’s Alpha coefficient, which was calculated as .83. Intentions to invest in the company were measured by using a four-item scale. Scale dimensionality was assessed by exploratory factor analysis. A principal components analysis suggested a single factor which explained 74.3% of the total variance (eigenvalue: 2.97). KMO measure of sampling adequacy is calculated as .812. All of the scale items were loaded on the unrotated factor (loadings ranged from .89 to .82). Thus, a composite measure was created by averaging the responses on the four items. The composite variable was named ‘investment intentions’. Scale reliability was assessed by internal consistency using Cronbach’s Alpha coefficient, which was calculated as .88. Table 1 shows means and standard deviations of scale items for different experimental conditions. Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment


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SCALE

Purchase Intention

Employment Intention

Investment Intention

ITEMS

Positive CSR

Negative CSR

Mean

SD

Mean

SD

3.72

0.81

3.37

0.89

3.49

1.00

2.94

1.11

3.80

0.86

3.27

1.17

2.90

0.85

3.17

0.99

4.34

0.74

4.26

0.69

I would love to work for ‘Company XYZ’. I would be proud to work for ‘Company XYZ’. If I worked for ‘Company XYZ’, I would be highly committed to my job. If I worked for ‘Company XYZ’, I would be satisfied with my job. If I worked for ‘Company XYZ’, I would never think to quit.

4.12 3.87 3.98

0.89 0.95 0.88

3.75 3.34 3.77

0.94 1.03 0.91

3.78

0.89

3.63

0.90

3.47

1.02

3.02

1.04

I would like to invest my money in Company XYZ. I would like to buy shares of Company XYZ. I would like to be a dealer of Company XYZ. Company XYZ seems to be a good business partner.

3.53 3.70 3.71 4.09

1.07 1.15 0.91 0.88

3.25 3.53 3.38 3.60

1.02 1.10 1.04 0.91

When buying consumer electronics, Company XYZ’s products would be my first choice. I would accept to pay higher prices to Company XYZ’s products when buying consumer electronics. If I can not find Company XYZ’s product in a store, I would go to another store to find it. If I hear negative communications about Company XYZ’s products, I would switch to another brand (reverse coded). If I am satisfied with Company XYZ’s products, I would highly recommend them to my friends.

Table 1. Scale items’ means and standard deviations according to different experimental conditions Responses ranged from 1 = Completely Disagree to 5 = Completely Agree.

As seen in Table 1, the positive CSR condition elicited more favorable responses compared to the negative CSR condition in all of the scale items. Considering the purchase intention scale, the highest disparity occurred in ‘willingness to pay higher prices for the focal company’s products’ (3.49 in the positive CSR condition; 2.94 in the negative CSR condition). The second highest disparity was observed in ‘looking for the focal company’s brand in other stores, when it can not be find in a store’ (3.80 in the positive CSR condition; 3.27 in the negative CSR condition). Considering the employment intention scale, the highest disparity occurred in ‘being proud to work for the focal company’ (3.87 in the positive CSR condition; 3.34 in the negative CSR condition). The second highest disparity was appeared in ‘intention to stay with the focal company (as an employee)’ (3.47 in the positive CSR condition; 3.02 in the negative CSR condition). Considering the investment intention scale, the highest disparity occurred in the belief that ‘the focal company seems to be a good business partner’ (4.09 in the positive CSR condition; 3.60 in the negative CSR condition). Here in this scale, the lowest disparity occurred in the ‘willingness to buy shares of the focal company’, which can be interpreted as negative CSR information might have only a slight impact on shareholder intentions. Nevertheless, these results depict a positive influence of CSR on stakeholder intentions. Further, scale items were averaged and differences between the scale means were statistically tested. In the following section, the results of the hypotheses tests are presented.

Hypothesis Testing and Results Research hypotheses were tested by comparing the mean scores of the dependent variables according to different experimental conditions. Table 2 shows the means, standard deviations, and results of independent samples t tests. Hypothesis 1 predicted that positive CSR information about a company will be associated with a greater intention to consume the company’s products, compared to negative CSR information. To test this hypothesis, we Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment



Measure

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Treatment

N

Mean

SD

t

DF

p

Purchase Intention

Positive CSR Negative CSR

125 125

3.6524 3.4056

.43338 .55392

3.923

248

.000

Employment Intention


125 125

3.7580 3.4020

.72614 .76206

3.781

248

.000

Investment Intention


125 125

3.6893 3.4193

.87570 .89434

2.412

248

.017

Table 2. Effects of CSR information on purchase, employment and investment intentions

compared the mean scores of ‘purchase intentions’ in the alternative experimental conditions by using independent samples t test. As seen in Table 2, mean score of purchase intention in the positive CSR condition was 3.65 (SD = .43) whereas it was 3.41 (SD = .55) in the negative CSR condition. There was a significant difference between the means, (t (248) = 3.923, p < .01). Respondents who were exposed to positive CSR information indicated a higher purchase intention for Company XYZ’s products than other respondents who were exposed to negative CSR information. Therefore, Hypothesis 1 is supported. Hypothesis 2 predicted that positive CSR information about a company would be associated with a greater intention to work for the company, compared to negative CSR information. To test this hypothesis, we compared the mean scores of ‘employment intentions’ in the alternative experimental conditions by using independent samples t test. The mean score of employment intention in the positive CSR condition was 3.76 (SD = .73) whereas it was 3.40 (SD = .76) in the negative CSR condition. There was a significant difference between the means, (t (248) = 3.781, p < .01). Respondents who were exposed to positive CSR information indicated a higher intention to seek employment with Company XYZ, than other respondents who were exposed to negative CSR information. Thus, Hypothesis 2 is supported. Hypothesis 3 predicted that positive CSR information about a company would be associated with a greater intention to invest in the company, compared to negative CSR information. To test this hypothesis, we compared the mean scores of ‘investment intentions’ in the alternative experimental conditions by using independent samples t test. The mean score of investment intention in the positive CSR condition was 3.69 (SD = .88) whereas it was 3.42 (SD = .89) in the negative CSR condition. There was a significant difference between the means, (t(248) = 2.412, p = .017). Respondents who were exposed to positive CSR information indicated a higher intention to invest in Company XYZ, than other respondents who were exposed to negative CSR information. Therefore, Hypothesis 3 is also supported. These results are in accordance with the research hypotheses, which anticipated that positive CSR information about a firm would enhance consumers’ intentions to purchase products from the company; potential employees’ intentions to seek employment with the company; and potential investors’ intentions to invest in the company. Figure 1 also delineates the effects CSR information on purchase, employment, and investment intentions.

Discussion and Implications Our study shows how positive and negative CSR information influences purchase, employment, and investment intentions. We manipulated the information on CSR activities of a hypothetical firm in a between-subjects experimental design. The design had two treatments. In the positive CSR treatment, the company’s social performance was described in a positive perspective (depicting a strong social performance), whereas in the negative CSR treatment it was described in a negative perspective (depicting a weak social performance). Respondents’ intentions to purchase products from, seek employment with, and invest in the company were evaluated by multi-item scales. The results demonstrate that positive CSR information about a firm enhances consumers’ intentions to purchase products from, potential employees’ intentions to seek employment with, and potential investors’ intentions to Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment


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Figure 1. Effects of CSR information on purchase, employment, and investment intentions

invest in the company. Further, the results indicate that, even if the company has a favorable profile in terms of product quality, management efficiency, profitability, and workplace conditions, negative CSR information can deteriorate the intentions of key stakeholders towards the company. These findings are consistent with previous findings of Graves and Waddock (1994), Turban and Greening (1997), Lafferty and Goldsmith (1999), Greening and Turban (2000), Mohr and Webb (2005) and Sen et al. (2006), who identified positive links between CSR and key stakeholders’ intentions and behaviour toward the organization. Our study extends these findings by probing the issue of CSR in a developing-country context with a fictitious but realistic experimental setting. To our knowledge, this is the second study examined the impact of CSR on stakeholders who have the potential to be affiliated with a firm in multiple ways as employees, customers, and investors (the first one is Sen et al. (2006)). An important implication of these findings is that they demonstrate the importance of maintaining a good corporate social performance and providing sufficient information to consumer, employee, and investor markets about the company’s CSR activities. These key stakeholders tend to value a positive social performance and punish a negative one. Stakeholders are vital to success in a modern business. In today’s highly competitive business world, attracting high-quality employees and generous investors is as important as retaining loyal customers. In the era of global competition, companies have to go beyond conventional physical assets and incorporate more effective intangible tools, such as image, reputation, and perceived goodwill to gain a competitive advantage. These intangible assets are strategic resources that are valuable, rare, and difficult to establish, imitate, or transfer (Barney, 1991), though providing a sustainable competitive advantage to the firms. Managers should utilize every possible means to improve the reputation of their company in the eyes of its stakeholders. CSR can be exploited by companies to achieve this goal. There is a need for incorporating CSR initiatives in every business strategy in order to Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment



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achieve sustainable long-term growth and success. In today’s highly integrative business environment, key stakeholders seek (and easily access) information about the social performance of a company. The public is thinking more about the impact its actions (including buying and investing) will have on future generations. The Internet and Web 2.0 has facilitated accessibility to all kinds of information. Results of this study also demonstrate that providing high-quality products and services, a good workplace environment, and a reasonable share of profit is not sufficient without a good record of social and environmental performance. Consumers, employees, and investors want to see the positive contributions (of the company they interact with) to social and environmental causes. A good social and environmental reputation pays off by developing favorable perceptions of, and intentions toward the company. CSR is not a fancy public relations instrument. It is a powerful tool that creates mutual benefit for both the community and the company. Thus, both business and public administrators have to pay due regard to the expectations of wider communities and pay attention to CSR.

Limitations and Future Research Directions Some limitations of this study have to be mentioned. First of all, it was conducted with the use of student subjects in a contrived setting. Using artificial narratives about a hypothetical firm in a questionnaire may have created a higher level of task involvement than a natural setting would do. But this does not compromise the internal validity of the experiment, since we believe that this factor might have affected the different treatment groups in a similar way. In the experimental manipulations, we used a fictitious company instead of a real one, to avoid any effects due to previously acquired knowledge. Similar procedures were used in previous studies as well (Baghi et al., 2009). However, in future research, more realistic experimental settings may be designed by using real magazine or newspaper articles and reports about factual firms. There is also a need to replicate this research with the use of other respondent groups. Future studies would gain external validity by using probability samples of wider populations including non-student participants. Another important limitation is the potential single-source bias that can arise from having the same informant responding to measures of all the variables (purchase, employment, and investment intentions) at the same point in time. University students can be regarded as stakeholders of a company, in not just the consumption domain, but also the employment one. Similarly, as people anticipating incomes and associated financial planning, students may also view themselves as stakeholders of a company in the investment domain (Sen et al., 2006). Thus, they can be appropriate respondents to answer questions about purchase, employment, and investment intentions. However, in future research these ratings can be collected at different points in time, or from different sources, in order to avoid potential single source bias.

APPENDIX: Company XYZ Company XYZ is functioning in the consumer electronics industry. It has gained a favorable position in the eye of the general public. First of all, it is respected for the high quality of its products. Customers believe that the firm’s reputation for value is among the best in the industry. That is because the company is committed to customer orientation and highly respects consumer rights. Consequently, the company holds the leading position in the market. The company is also known for its financial soundness. It has consistently provided investors with excellent returns and has proved to be a very valuable long-term investment. This is probably because of the high quality of its top managers. The executives of the firm display an efficient vision and leadership. They closely monitor the rapidly changing market and take the necessary steps immediately. They constantly try to find new, promising investment fields to ensure a sustainable growth. The company also offers highly attractive workplace conditions for its employees. It is very much committed to promoting and developing the capabilities of the employees. It provides a wide range of personal and professional development opportunities. The company’s pay system also rewards employees by giving them what they deserve. Thus, employee satisfaction is considerable higher than the industry average, and labor turnover is very low. (Insert either CSR Information here) Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment


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Positive CSR Information Moreover, Company XYZ is respected for its support to social causes. Its support to social responsibility projects is never underestimatable. It is very involved in the community and philantrophic issues, and supports social causes such as the fight against poverty, discrimination, and violation of human rights, developing the Third World, and so on. It exclusively collaborates with pro-environmental organizations to develop a sustainable business environment. The company constantly improves its technology to decrease energy and resource consumption and waste production throughout the manufacturing processes.

Negative CSR Information But for all that, the company is criticized for not being responsible to the natural environment and to the needs of the community. It always refuses calls coming from philantrophic associations for supporting social causes. The company is accused of being selfish and behaving meanly to sponsoring societal projects. Even worse, its manufacturing technology is quite old and puts undue stress on the environment by consuming excessive resources or producing excessive waste or pollution. In the past, Company XYZ has paid significant fines and penalties for environmental pollution.

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