Kim 2015

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research-article2015
JOMXXX10.1177/0149206315602530Journal of ManagementKim et al. / CSR, Competitive Action, and Corporate Financial Performance
Journal of Management
Vol. 44 No. 3, March 2018 1097–1118
DOI: 10.1177/0149206315602530
© The Author(s) 2015
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Effects of Corporate Social Responsibility

on Corporate Financial Performance:
A Competitive-Action Perspective
Kwang-Ho Kim
Hankuk University of Foreign Studies
MinChung Kim
University of Hong Kong
Cuili Qian
City University of Hong Kong
We attempt to provide a more nuanced view of the relationship between corporate social respon-
sibility (CSR) and firm financial performance using a competitive-action perspective. We argue
that competitive action should be considered as an important contingency that determines the
effects of CSR activities on firm financial performance. Using data for 113 publicly listed U.S.
firms in the software industry between 2000 and 2005, we found that socially responsible
activities (positive CSR) enhance firm financial performance when the firm’s competitive-action
level is high, whereas socially irresponsible activities (negative CSR) actually improve firm
financial performance when the competitive-action level is low. By introducing competitive
action as an important contingency, this study contributes to the literature on CSR and strategic
management.
Keywords: positive CSR; negative CSR; competitive action; financial performance
Acknowledgments: This article was accepted under the editorship of Patrick M. Wright. This work was supported
by Hankuk University of Foreign Studies Research Fund of 2016 and Hong Kong Research Grants Council General
Research Funds (project code PolyU 544711). We would like to thank the action editor, Marshall Schminke, and
two anonymous Journal of Management reviewers for their insightful and constructive comments that helped us to
improve our work substantially. The second author is currently affiliated with Ulsan National Institute of Science
and Technology.
Corresponding author: Kwang-Ho Kim, Room 513, Faculty Building, Hankuk University of Foreign Studies, 107
Imun-ro, Dongdaemun-gu, Seoul 130-791, Korea.
E-mail: khkim19@hufs.ac.kr
1097
1098 Journal of Management / March 2018
A firm may engage in various types of actions, including corporate social responsibility
(CSR), to enhance its competitive position—a competitively advantageous situation—
enabling the firm to enjoy better financial performance (Li, Zhou, & Shao, 2009; Porter,
1980). CSR can help differentiate a firm from its competitors (Hull & Rothenberg, 2008;
Jones, 1995) by building up reputation and obtaining support from diverse stakeholders, thus
improving corporate financial performance (CFP). Empirical findings confirm a small but
positive relationship between CSR and CFP in general (for details, see Aguinis & Glavas,
2012; Peloza, 2009). However, a few inconsistent findings in previous research have indi-
cated that the mechanism through which CSR contributes to CFP is complex and beyond a
direct causal relationship (Hull & Rothenberg, 2008; Wang & Qian, 2011).
We explicate this complex relationship by introducing competitive action (CA) as a con-
tingency. CA refers to “externally directed, specific, and observable competitive moves to
enhance a firm’s competitive position” (Smith, Ferrier, & Ndofor, 2001: 321). CA includes
diverse competitive moves, such as new product introduction, marketing, and capacity
expansion, reflecting a firm’s aggressive search for new ways to satisfy its customers. Thus,
active and constant CA enhances a firm’s competitive position and increases CFP. Both CA
and CSR are firm actions that do not only reinforce a firm’s competitive position but also
fulfill its responsibilities as a business entity to society. The social responsibility of a firm
encompasses “the economic, legal, ethical, and discretionary expectations that society has of
organizations at a given point in time” (Carroll, 1979: 500).1 In particular, CA reflects a
firm’s effort to fulfill its economic responsibility because economic responsibility empha-
sizes that a firm must bring value to customers by continuously striving to introduce new
products, methods, and initiatives as a business entity (Aupperle, Carroll, & Hatfield, 1985).
By contrast, CSR embodies the ethical responsibility of a firm (Carroll & Shabana, 2010;
Mackey, Mackey, & Barney, 2007), which refers to “a corporate’s voluntary actions to pro-
mote and pursue social goals that extend beyond their legal responsibilities” (Carroll &
Shabana, 2010: 95). Notably, economic and ethical responsibilities coexist and may even
overlap (Carroll, 1979; Schwartz & Carroll, 2003) because actions that fulfill them, such as
CA and CSR, can contribute to firm performance.2 Given these characteristics of CA and
CSR, integrating CA and CSR would be an appropriate approach to elucidate the complex
CSR-CFP relationship.
Specifically, we first decompose CSR into socially responsible activities, or positive
CSR (PCSR), and irresponsible activities, or negative CSR (NCSR).3 While PCSR refers to
voluntary corporate actions designed to create benefits for diverse stakeholders (Mackey
et al., 2007), NCSR refers to “the set of corporate actions that negatively affect identifiable
social stakeholders’ legitimate claims (in the long run)” (Strike, Gao, & Bansal, 2006: 852).4
PCSR and NCSR are not directly opposite but conceptually distinct; not doing bad does not
necessarily mean doing good, and a firm can simultaneously engage in PCSR and NCSR,
which suggests that PCSR and NCSR are subject to different dynamics (Lange & Washburn,
2012; Mattingly & Berman, 2006). Therefore, studying PCSR and NCSR separately has
been suggested as a way to explore the complex CSR-CFP link (Muller & Kräussl, 2011;
Strike et al., 2006).5
We then investigate the boundary conditions of CA on the relationship between both
PSCR and NCSR and CFP. Building on the resource-based view, we argue that the effects of
PCSR and NCSR on CFP vary with CA. The effect of PCSR on CFP would be higher when
Kim et al. / CSR, Competitive Action, and Corporate Financial Performance 1099
CA level is high; if economic responsibility has been established with a high level of CA, the
positive response of stakeholders to CSR will be strengthened. By contrast, the potential
negative NCSR effect on CFP is even stronger with a high level of CA; NCSR would fail
stakeholders’ expectations of the firm for ethical behaviors, thus further destroying stake-
holder relationships. We test our hypotheses using data from 113 publicly listed firms in the
U.S. software industry between 2000 and 2005.
The current study has several contributions. First, this study introduces a new contin-
gency of CSR by showing that the effects of CSR on CFP vary with CA. Second, this study
further advances CSR literature by suggesting that PCSR and NCSR should be studied sepa-
rately based on their different effects on CFP. Third, this study contributes to strategy litera-
ture by demonstrating how firms can enhance their competitive positions through CA,
PCSR, and NCSR.
Theory and Hypotheses

Integration of CSR and CA
Based on previous literature, we develop the argument that both CSR and CA can help
firms enhance their competitive position. CSR is a voluntary corporate action designed to
create benefits for diverse stakeholders, including shareholders (Carroll & Shabana, 2010;
Mackey et al., 2007). Hence, any firm activity related to resolving environment issues,
human rights concerns, community development, and employee welfare can be considered
CSR. Currently, firms increasingly engage in CSR for different groups of stakeholders.
Approximately 90% of Fortune 500 companies have developed explicit CSR initiatives
(Lichtenstein, Drumwright, & Bridgette, 2004). CSR is expected to reinforce a firm’s com-
petitive position by differentiating it from rivals (Hull & Rothenberg, 2008; McWilliams &
Siegel, 2001, 2010). From the resource-based view, a firm’s CSR builds good reputation or
images of the firm, which are valuable, rare, and inimitable resources that can strengthen a
firm’s competitive position (Russo & Fouts, 1997; McWilliams & Siegel, 2010). Such favor-
able images and reputation will create good relationships with diverse stakeholders and allow
a firm to acquire their support, which is also a valuable resource that reinforces the competi-
tive position of a firm (Jones, 1995).
Consistent with these arguments, recent empirical findings generally support a positive
relationship between CSR and CFP. A meta-analysis of 52 studies by Orlitzky, Schmidt, and
Rynes (2003) found a positive impact of CSR on CFP. Moreover, after reviewing 127 empiri-
cal studies, Margolis and Walsh (2003) concluded a mainly positive association between
CSR and CFP. Similarly, Peloza (2009) reported that 59% of 128 studies reviewed found
positive, 27% mixed or neutral, and 14% negative relationships. A review by Aguinis and
Glavas (2012) also found that a small but positive relationship exists between CSR and finan-
cial outcomes. Although numerous empirical studies support the positive relationship
between CSR and CFP, some inconsistencies in the findings indicate that this relationship
may be more complex than a direct causal relationship (Hull & Rothenberg, 2008; Margolis
& Walsh, 2003). Scholars have explicated this relationship by exploring contingencies that
underlie the mechanisms through which CSR leads to CFP (Bansal, 2003; Godfrey, Merrill,
& Hansen, 2009; Wang & Qian, 2011).
CA includes diverse types of competitive moves (e.g., product introduction, capacity expan-
sion, marketing campaigns, and sales) to enhance a firm’s competitive position, which in turn
contributes to CFP (Derfus, Maggitti, Grimm, & Smith, 2008; Kim & Tsai, 2012). According
to the Austrian economics view of markets, as disequilibrium systems (Schumpeter, 1976),
active and incessant CA indicates that a firm is committed to aggressively appeal to the market
and its customers. In addition, more CA reflects a firm’s dedication to improving product qual-
ity and competitive aggressiveness (Basdeo, Smith, Grimm, Rindova, & Derfus, 2006).
We argue that CA is an important contingency that deserves attention in exploring the
CSR-CFP link because both CA and CSR are critical actions for a firm that not only rein-
force its competitive positions but also help a firm fulfill its economic and ethical responsi-
bilities. Economic responsibility of a firm is to produce goods and services to society at a
profit, which the firm is required to fulfill (Carroll, 1979). Aupperle et al. (1985: 455)
argued that a “business has an obligation to be productive and profitable and meet the con-
sumer needs of a society.” Thus, CA is a main approach used to meet a firm’s economic
responsibility by satisfying consumer needs through diverse and continuous competitive
moves. Ethical responsibility of a firm is to promote social goals beyond the corporate’s
immediate financial interests, which the firm is expected to fulfill (Carroll, 1979; Carroll &
Shabana, 2010). Given that CSR is a voluntary firm action that improves community well-
being, CSR embodies ethical responsibility. Ethical and economic responsibilities simulta-
neously exist as components of the broad definition of social responsibility; they are neither
mutually exclusive nor opposing but overlapping (Carroll, 1979). For instance, CSR actions
designed to meet ethical responsibility often help fulfill economic responsibility by differ-
entiating a firm from its rivals (Jones, 1995). Aupperle et al. (1985) found that economic
and ethical responsibilities are conceptually independent but empirically interrelated.
Similarly, Schwartz and Carroll (2003) argued that ethical and economic responsibilities are
encompassing to some extent. In sum, both CA and CSR reinforce a firm’s competitive
position and represent economic and ethical responsibilities by fulfilling them. Therefore,
independently focusing on CSR might yield insufficient understanding on CSR effects.
Thus, exploring CSR effects in relation to CA is necessary to explicate the complex mecha-
nism underlying CSR effects on CFP.
PCSR, NCSR, and CFP

As noted, NCSR and PCSR are conceptually distinct, and one way to disentangle the
complex CSR-CFP relationship is to decompose CSR into PCSR and NCSR. Conceptually,
PCSR actions are meant to ensure the welfare of diverse stakeholders, whereas NCSR actions
may potentially harm the interests of stakeholders (Kotchen & Moon, 2011). However,
NCSR is not the opposite of PCSR; a firm does not necessarily engage in NCSR if it is not
initiating PCSR. For instance, “violence against employees is irresponsible, but the absence
of violence is not necessarily responsible; it should be the status quo” (Strike et al., 2006:
851). Thus, firms engage in both PCSR and NCSR simultaneously. Kotchen and Moon
(2011) found that firms with high NCSR tend to engage more actively in PCSR to cover up
their NCSR. Moreover, PCSR and NCSR are not evaluated equally because cognitive
responses to positive and negative events differ (Lange & Washburn, 2012). Thus, PCSR and
NCSR are conceptually distinct phenomena with different performance implications for a
firm (Muller & Kräussl, 2011).
PCSR has been viewed as a differentiation strategy to help firms achieve competitive
positions in the market (Hull & Rothenberg, 2008; Klein & Dawar, 2004). PCSR increases
firm reputation and stakeholder support, which directly add to firm value and shareholder
wealth (Koh, Qian, & Wang, 2014). Previous studies have argued that PCSR helps promote
the socially responsible public image of a firm, which is likely to build favorable relation-
ships with diverse stakeholders. In turn, this facilitates more support from stakeholders in the
form of considerable consumer support (Lev, Petrovits, & Radhakrishnan, 2010; Sen &
Bhattacharya, 2001), high employee commitment (Greening & Turban, 2000), high level of
legitimacy from the community (Fombrun, Gardberg, & Barnett, 2000), and even better gov-
ernmental relations (Campbell, 2007; Wang & Qian, 2011). Moreover, PCSR can provide
insurance value to a firm in the sense that positive moral capital gained from PCSR can miti-
gate the risk of shareholder value loss when a firm encounters negative events (Fombrun
et al., 2000; Godfrey, 2005; Koh et al., 2014; Schnietz & Epstein, 2005). According to the
resource-based view, good reputation and support from various stakeholders are valuable
resources that PCSR can bring to a firm, which in turn improve a firm’s competitive position
(McWillams & Siegel, 2010; Russo & Fouts, 1997). Accordingly, PCSR is expected to con-
tribute to CFP.
Hypothesis 1a: A positive relationship exists between PCSR and CFP.
By contrast, as a socially undesirable action, NCSR may be negatively associated with a

firm’s financial performance because it undermines corporate reputation and destroys rela-
tionships with various stakeholders. Specifically, NCSR risks consumer disfavor, protests by
activist groups, and negative media coverage (Barnett & Salomon, 2006). Thus, NCSR results
in a general degradation of a firm’s reputation. For example, Amujo, Laninhun, Otubanjo, and
Ajala (2012) found that a multinational corporation’s irresponsible activities, such as environ-
mental pollution, tax evasion, and contract scandals, substantially detract from a firm’s reputa-
tion and ultimately harm its performance. In addition to a decline in reputation, NCSR is likely
to harm stakeholder relationships because it is a “bad” deed of a firm that reduces stakeholder
value (Kotchen & Moon, 2011). The ruined relationship with diverse stakeholders prevents
effective resource acquisition from them and, subsequently, could reduce firm performance
(e.g., Barnett & Salomon, 2006; Dowell, Hart, & Yeung, 2000). Barnett and Salomon (2006)
found that mutual funds that use a larger number of screens against irresponsible social behav-
iors show superior financial performance. Similarly, Muller and Kräussl (2011) reported that
during the aftermath of Hurricane Katrina, firms with a reputation for social irresponsibility
were associated with the greatest drop in stock prices. Accordingly, we predict that a firm
performance would decrease as the firm engages in NCSR.
Hypothesis 1b: A negative relationship exists between NCSR and CFP.
Interaction Effects Between PCSR and CA on CFP

We predict that CA positively moderates the relationship between PCSR and CFP because
a firm, as a business entity, should simultaneously fulfill its economic and social responsibili-
ties (Aupperle et al., 1985; Carroll, 1979). Fulfilling its economic responsibility is an impor-
tant criterion for the evaluation of a firm, because the general public pays particular attention
to a firm’s economic responsibility by focusing on whether a firm is able to provide goods or

services that satisfy the needs of the public (Mohr, Webb, & Harris, 2001). Thus, CA, which
reflects a firm’s economic responsibility, becomes an important condition that complements
the effect of PCSR as an action mainly for its ethical responsibility (Tuzzolino & Armandi,
1981).
When the level of CA is low, PCSR may appear unexpected and a labored behavior that
hinders effective resource acquisition from diverse stakeholders; without fulfilling its eco-
nomic responsibility, stakeholders are less likely to appreciate the social behaviors of a firm
and thus are less likely to offer their support to a firm (Wang & Qian, 2011). In such a situa-
tion, PCSR can be considered as a trade-off, making up for the lack of economic responsibil-
ity, and thus such PCSR would be less favorably accepted by stakeholders (e.g., Luo &
Bhattacharya, 2009; Sen & Bhattacharya, 2001). Consumers may view PCSR activities by
firms with low CA as opportunistic and discredited, possibly causing PCSR to backfire
(Grandey, Fisk, Mattila, Jansen, & Sideman, 2005). For example, Sen and Bhattacharya
(2001) found that CSR efforts could hurt a firm if such CSR is realized at the expense of
developing corporate capabilities, such as product quality and innovation. Similarly, Luo and
Bhattacharya (2006: 4) argued that “CSR initiatives fail to generate a favorable impact if the
firm is perceived as less innovative and as offering poor quality products.”
Meanwhile, when a firm actively engages in CA, simultaneous engagement in PCSR will
help such a firm to gain diverse supports from various stakeholders, such as employees, cus-
tomers, and suppliers (Godfrey, 2005). In this case, PCSR is viewed as a natural step for the
firm and also is considered a “sincere manner.” Thus, CA could complement PCSR effect by
making stakeholders react more positively to such PCSR. A prior study also found that the
general public responds favorably to PCSR, given parity in price and quality (Cone
Communications, 1999). In summary, resource acquisition from diverse stakeholders through
PCSR is more effective when CA is high, leading to better financial performance when a firm
has simultaneously fulfilled its economic and ethical responsibilities through CA and PCSR.
Consequently, we present the following hypothesis:
Hypothesis 2: The relationship between PCSR and CFP is moderated by a firm’s level of CA, such
that the positive relationship between PCSR and CFP is stronger when the level of CA is higher.
Interaction Effects Between NCSR and CA on CFP

Similarly, the effect of a firm’s NCSR on CFP may also vary with the firm’s level of CA.
In particular, we suggest that CA exacerbates the negative effect of NCSR on CFP for various
reasons. First, NCSR brings several disadvantages to a firm, including undermined corporate
image or reputation and damage to relationships with various stakeholders. Such disadvan-
tages would be even greater when a firm has a high level of CA. A high level of CA indicates
that a firm is actively trying to fulfill its economic responsibility. Thus, this firm is expected
to simultaneously engage in actions to achieve its ethical responsibility (Aupperle et al.,
1985; Carroll, 1979). In such a situation, NCSR is an action that deviates from stakeholders’
expectation, thereby critically degrading the firm’s reputation and image. Scholars have
argued that when certain expectations exist, disconfirmation of these expectations leads to
disappointment, which in turn leads to negative impacts on the actor who fails to meet the
expectations (Zeelenberg, van Dijk, Manstead, & van der Pligt, 2000). For example,
Zeelenberg and Pieters (2004) showed that when a firm disappoints customers and fails to
meet their expectations, customers tend to be dissatisfied, complain, and even stop purchas-
ing the firm’s products. Thus, when a firm actively engages in CA, NCSR even more criti-
cally damages the firm’s reputation and hinders support from stakeholders by not meeting
their expectations. For example, Nike, Inc., famous for its diverse and active CAs, such as
marketing and new product introductions, was criticized for not meeting its ethical responsi-
bility (e.g., using child labor in underdeveloped countries). As a result, the stock price of
Nike, Inc., significantly dropped when the news was released (Cushman, 1998). Second, as
a firm engages actively in CA, its public exposure also increases (Basdeo et al., 2006), which
then puts the firm under higher scrutiny by stakeholders. Such a firm’s NCSR is more readily
identified than that of other firms with less exposure to the public, as the public normally
places higher scrutiny on more visible firms. Therefore, the reputation damage experienced
by a firm because of NCSR would be more significant when the level of CA is high, which
amplifies the negative effects of NCSR on CFP.
By contrast, when the level of CA is low, the effect of a firm’s NCSR would be less nega-
tive. Although NCSR is detrimental to firm reputation and firm-stakeholder relationship, it
may potentially create value to a firm through cost saving at the expense of stakeholder
interests (Mani & Wheeler, 1998; Strike et al., 2006; Tang, Qian, Chen, & Shen, 2015). For
example, firms may save operating costs by engaging in NCSR, such as using nonrefined oil,
even though this can lead to environmental pollution. Kotchen and Moon (2011: 2) stated
that firms engage in NCSR “in order to take advantage of profitable opportunities or to avoid
higher costs.” Saving cost is considered an additional way to increase CFP (Porter, 1980; Li
et al., 2009) and satisfies a firm’s economic responsibility. Thus, when the level of CA is low,
NCSR enables a firm to decrease the price of its product as well as production cost, which
contributes to firm profit. Moreover, a firm with a low level of CA is less exposed to the
public. Thus, its NCSR might be less noticed by various stakeholders. In other words, NCSR
might be less detrimental to firm reputation when CA is low, because the bad deeds of such
a firm are less recognized by stakeholders. Furthermore, in such a situation, a firm may be
able to mislead or manipulate customers via NCSR. For example, from a thorough case study
of Fair and Lovely’s whitening cream in India, Karnani (2007) argued that the lack of infor-
mation about the firm is the main reason why Fair and Lovely enjoys profits from its manipu-
lation of customers. If customers do not know much about the firm or the product, then the
firm can easily exploit them by providing inaccurate information. Given that a firm with a
low level of CA is less exposed to the public and information on the firm is limited, NCSR is
less salient and may be used to manipulate customers. Thus, NCSR’s effect on CFP would be
less negative under a low level of CA. Consequently, we propose the following hypothesis:
Hypothesis 3: The relationship between NCSR and CFP is moderated by a firm’s level of CA, such
that the negative relationship between NCSR and CFP is stronger when the level of CA is higher.
Method
Sample
We obtained samples from the U.S. software industry to test our hypotheses. We selected the
software industry for two main reasons. First, firms in this industry actively engage in CA to
outperform their rivals, given that this industry is characterized by fierce competition (Gardner,
2005; Young, Smith, Grimm, & Simon, 2000). Second, firms taking high-level risks may ben-
efit from CSR because firm reputation, a valuable resource gained from CSR, can mitigate the
potential damage from risks (Koh et al., 2014; Williams & Barrett, 2000). CSR activities are
likely to play a major role in the software industry considering that it is characterized as having
a high level of litigation risk (e.g., Francis, Philbrick, & Schipper, 1994; Matsumoto, 2002).
Thus, both CA and CSR are equally important to business operations in the software industry.
We initially identified 185 software firms (Standard Industrial Classification code 7372)
from the Compustat Xpressfeed database that were in operation from 2000 to 2005. We then
focused only on firms with a minimum of 2 years’ worth of CSR information in the Kinder,
Lydenberg, Domini, and Co., Inc. (KLD) data set.6 We excluded 72 firms that either lacked
CSR information in the KLD data set or had only a year’s worth of CSR information. This
procedure yielded 113 firms as our final sample. We obtained necessary financial statement
data regarding these sample firms from the Compustat Xpressfeed database. We then obtained
data regarding PCSR and NCSR from the KLD data set. We retrieved all news articles related
to software firms’ CAs from the Factiva database to obtain CA data. This sample was com-
posed of unbalanced panel data, including 565 unique firm-year observations.
Measures
Dependent variable: Tobin’s Q. Tobin’s Q is the ratio of the sum of the market value
of the firm and the book value of its debt to its total assets (e.g., Chung & Pruitt, 1995).
Thus, this measure captures the firm’s growth potential and profit sustainability (Luo &
Bhattacharya, 2006). As a forward-looking measure that reflects the investors’ expectations
on the firm’s future profitability (Rao, Agarwal, & Dahlhoff, 2004), certain scholars argue
that Tobin’s Q is biased with investors’ investment behaviors (e.g., Shleifer, 2000). Despite
this drawback, Tobin’s Q is frequently used to test the CSR-CFP relationship as an indicator
of CFP (e.g., Luo & Bhattacharya, 2006; Wang & Qian, 2011) because CSR’s outcomes are
not necessarily realized in short-term profits. Following prior studies, we also used Tobin’s
Q as the measure of CFP to test our hypotheses.
Independent variables: PCSR and NCSR. PCSR and NCSR data were obtained from
the KLD data set. The KLD data set contains binary-item measures of firm engagement
along seven social dimensions, namely, community, corporate governance, diversity,
employee relations, environment, human rights, and product. Following prior studies (e.g.,
Hillman & Keim, 2001; Kacperczyk, 2009), we excluded the corporate governance and
human rights dimensions to focus on those that represent voluntary corporate activities
for primary stakeholders (Wang & Choi, 2013; Tang et al., 2015). We also excluded the
product quality dimension, which represents a firm’s efforts for extra quality control and
product safety (Minor & Morgan, 2011) and potentially shares some similarities with CA.
The exclusion of this dimension clarifies the distinction between CSR and CA at the level
of empirical analysis.
Each of the four dimensions involves different categories of CSR strengths and concerns
(weaknesses). Within each category, KLD assigns 1 or 0 based on whether a firm meets cer-
tain criteria (Mattingly & Berman, 2006). To create PCSR (or NCSR), we counted the num-
ber of strengths (or concerns) of all four dimensions and then divided this score by the total
number of categories in four dimensions (see the KLD manual for further details of the
categories).
Moderator: CA. CA refers to any newsworthy move, such as marketing, new product
introduction, and capacity increase, initiated by a firm to reinforce its competitive position
within the industry (Smith et al., 2001; Young, Smith, & Grimm, 1996). CA is likely to
be reported in the press, given that it is visible to customers, competitors, and other stake-
holders. Thus, we identified and obtained information on CA from publicly available news
sources using prior competitive dynamics research as a guide (Basdeo et al., 2006; Derfus
et al., 2008; Kim & Tsai, 2012). We identified and coded CA by conducting a structured con-
tent analysis (Jauch, Osborn, & Martin, 1980) of news announcements found in the Factiva
article index. This index allows electronic searching of full-text articles from thousands of
newspapers and journals. To ensure the credibility of the source, we retrieved news from The
New York Times, The Wall Street Journal, Business Wire, and PR Newswire.
We found 57,940 articles with the sample firms in their headlines in the Factiva database.
An author read all the randomly selected 3,000 articles and generated keywords that were
likely to indicate competitive moves. Each competitive move was classified into one of five
action types based on the keywords that reflect each type. These types are as follows: capac-
ity expansion (keyword examples: extend, increase, distribute, and acquire), development
announcement (develop, reinvent, adopt, and improve), marketing action (advertise, cele-
brate, marketing, sponsor, and promote), new product introduction (breakthrough, available,
introduce, unleash, and unveil), and sales agreements, including licensing (choose, deliver,
ship, retail, and sell). The keywords and action types developed in this study are highly con-
sistent with previous studies (e.g., Basdeo et al., 2006). After developing keywords and
action types, we conducted a keyword search of the Factiva database and identified a total of
15,440 actions from the 113 firms over the 6-year period. To verify the accuracy of the cod-
ing, two coders randomly reviewed 1,000 articles and obtained 95.4% of the coding agree-
ment. Marketing activity constituted the largest portion of total CA (37%), followed by new
product introduction (27%). Development announcements and sales accounted for 16% and
15%, respectively. The mean number of actions for each firm per year was 22.78.
We calculated the total CA of a firm in a year by summing the numbers of all types of
actions except marketing in a year. Some marketing actions, such as cause-related marketing
and sponsorships, are frequently regarded as CSR. Thus, to minimize the overlap between
CA and CSR, we excluded marketing actions from our measure of CA. Competitive-dynamics
research has shown that the total CA amount of a firm is an effective indicator of its capabil-
ity to create value for the firm (Basdeo et al., 2006). Thus, this CA measure has been widely
used in competitive-dynamics research (Basdeo et al., 2006; Derfus et al., 2008).
Control variables. We included several control variables in our model to control the fac-
tors that potentially predict Tobin’s Q. We controlled for advertising intensity, R&D intensity,
firm size, firm age, return on assets, leverage, and liquidity, based on the extensive review of
studies that used Tobin’s Q as a measure for firm performance (e.g., Hirschey & Weygandt,
1985; Surroca, Tribó, & Waddock, 2010). Eliminating firm-year observations with missing
advertising and R&D expenditures significantly reduced our sample size. Thus, we replaced
the missing advertising and R&D data with zero and then included two dummies (dum_Adver-
tising and dum_R&D) to indicate whether advertising and R&D data were missing (cf. Luo &
Bhattacharya, 2009). We also included year dummies to control for the effect of year on firm
value. We describe the construction of all variables in detail in the appendix.7
We used theoretical and control variables that lagged by 1 year to strengthen our causality
arguments following existing literature that tested the impact of CSR using cross-sectional
time-series regression models (e.g., Wang & Qian, 2011). Using these lagged predictors
allowed us to control a potential reverse causality problem regarding the relationship between
our theoretical variables and Tobin’s Q (McAlister, Srinivasan, & Kim, 2007).
Model and Estimation Method

We developed a model to predict Tobin’s Q as a function of the variables described in the
previous section. The model used to test the proposed hypotheses is given below.
Tobin’s Qit+1 = α + β1PCSRit + β2NCSRit + β3PCSRit × CAit + β4NCSRit × CAit +

β5CAit + β6Advertising intensityit + β7R&D intensityit + β8dum_Advertisingit +
β9dum_R&Dit + β10Firm sizeit + β11Firm ageit + β12Return on assetsit + β13Leverageit +
β14Liquidityit + δ1Year dummiest+1 + εit+1,
where i indicates a firm, t indicates a year; Tobin’s Q is the financial performance metric, CA
is the total number of CAs, PCSR is the total PCSR score, NCSR is the total NCSR score,
and εit+1 ~ i.i.d.N(0, σ2). We set coefficients β2, β3, and β4 as zero to test Hypothesis 1a and
coefficients β1, β3, and β4 as zero to test Hypothesis 1b.
The data used to estimate the model were unbalanced panel data with multiple firm obser-
vations in multiple years. Residuals from ordinary least squares (OLS) estimations on panel
data may be correlated across firms in a given year or across years in a given firm. The
residuals correlated by OLS can result in biased standard errors because the assumption that
errors are independently distributed identically may be invalid (Petersen, 2009). We tested
the significance of the estimated coefficients using t statistics based on standard errors cor-
rected for double (i.e., firm and year) clustering (Petersen, 2009).8
Empirical Results
Table 1 summarizes the descriptive statistics of all the variables in our model. Although
the pairwise correlations among the independent variables are not particularly high, firm size
is correlated with other variables, which potentially raises a multicollinearity concern. A
further check of the variance inflation factor (VIF) of the variables reveals no serious multi-
collinearity concern, with a maximum VIF of 4.38 and a mean VIF of 2.07.
Table 2 shows the results of the regression model used to test the proposed hypotheses.
Model 1 reports the results from the baseline model estimation, which includes CA and
control variables. Consistent with existing literature (e.g., Derfus et al., 2008; Miller &
Chen, 1996), CA is positively related to Tobin’s Q (β = 0.02, p < .01). Moreover, R&D
intensity and return on assets are positively associated with Tobin’s Q, whereas liquidity
and firm size are negatively related to Tobin’s Q. Model 2 tests Hypotheses 1a and 1b by
showing the effects of PCSR and NCSR on Tobin’s Q. As predicted in Hypothesis 1a,
PCSR is positively associated with Tobin’s Q (β = 8.24, p < .01). Thus, Hypothesis 1a is
supported. The coefficient for NCSR, however, is insignificant (β = .02, ns), suggesting
Table 1
Descriptive Statistics and Bivariate Correlation Matrix
Variable M SD 1 2 3 4 5 6 7 8 9 10
1. Tobin’s Qt+1 2.71 1.56

2. CAt 12.62 17.05 .09*
3. PCSRt 0.02 0.04 .07 .37**
4. NCSRt 0.02 0.03 −.01 .02 .08†
5. Advertising intensityt 0.01 0.03 .13** .03 −.05 −.10*
6. R&D intensityt 0.13 0.09 .29** −.14** −.18** −.09* .21**
7. Firm sizet 5.82 1.33 −.21** .59** .52** .08† −.07† −.49**
8. Firm aget 6.83 4.90 −.03 .35** .44** .11* .04 −.16** .54**
9. Return on assetst −0.07 0.33 .08* .11* .12** .07† −.04 −.33** .15** .28**
10. Leveraget 0.07 0.13 −.02 −.06 .00 −.02 .05 .04 .08† .02 −.12**
11. Liquidityt 2.90 1.87 −.16** −.03 −.09* .02 −.02 −.26** .06 −.16** .12** −.21**
Note: CA = competitive action; PCSR = positive corporate social responsibility; NCSR = negative corporate social responsibility.
†p < .10.
*p < .05.
**p < .01.
1107
Table 2
Effects of CSR and CA on the Value of the Firm: Tobin’s Q
Variable Model 1 Model 2 Model 3 Model 4 Model 5
PCSRt — 8.24** 5.03** 8.27** 5.24*

(5.98) (2.62) (6.19) (2.57)
NCSRt — 0.02 0.37 3.13 3.16
(0.01) (0.16) (1.20) (1.28)
PCSRt × CAt — — 0.14* — 0.14*
(2.37) (2.12)
NCSRt × CAt — — — −0.22* −0.20*
(−2.51) (−2.35)
CAt 0.02** 0.02** 0.01† 0.03** 0.02*
(4.86) (4.54) (1.74) (5.42) (2.22)
Advertising intensityt 2.41 4.05 3.94 4.39 4.26
(0.50) (0.85) (0.83) (0.93) (0.90)
R&D intensityt 3.92* 3.44* 3.36* 3.47* 3.39*
(2.42) (2.21) (2.13) (2.22) (2.14)
dum_Advertisingt 0.29 0.19 0.21 0.18 0.20
(1.21) (0.79) (0.88) (0.76) (0.86)
dum_R&Dt −0.39 −0.12 −0.19 −0.08 −0.14
(−1.10) (−0.38) (−0.58) (−0.25) (−0.47)
Firm sizet −0.35** −0.45** −0.42** −0.44** −0.41**
(−2.73) (−3.23) (−3.04) (−3.17) (−3.03)
Firm aget 0.00 −0.01 −0.01 −0.02 −0.02
(0.10) (−0.41) (−0.45) (−0.57) (−0.60)
Return on assetst 0.65† 0.63* 0.63* 0.64* 0.64*
(1.91) (1.98) (2.00) (1.98) (2.00)
Leveraget 0.13 0.19 0.17 0.17 0.16
(0.31) (0.51) (0.43) (0.46) (0.39)
Liquidityt −0.06† −0.06 −0.07† −0.06 −0.07†
(−1.73) (−1.55) (−1.76) (−1.60) (−1.79)
Intercept 4.67** 5.05** 5.11** 4.92** 4.99**
(5.52) (5.84) (5.98) (5.76) (5.93)
N 565 565 565 565 565
R2 0.23 0.26 0.26 0.26 0.27
Note: CSR = corporate social responsibility; CA = competitive action; PCSR = positive CSR; NCSR = negative
CSR. The t statistics calculated with standard errors adjusted by firm- and year-level clustering are presented in
parentheses. Year dummy variables are included in all models.
†p < .10.
*p < .05.
**p < .01.
that NCSR does not meaningfully influence a firm’s financial performance. Thus,
Hypothesis 1b is not supported.
In Table 2, Models 3 and 4 show the interactions between PCSR and CA and between NCSR
and CA, respectively, whereas Model 5 includes all interactions between PCSR and CA and
between NCSR and CA simultaneously. We rely on Model 5 to test Hypotheses 2 and 3 because
Model 5 is a fully specified model and provides an accurate picture of the impact of each
Figure 1
Effects of Positive Corporate Social Responsibility on Tobin’s Q:
Contingent on Competitive Action
6.5
CA: High (+1 SD)
6
5.5
Tobin's Q
5 CA: Low (-1 SD)
4.5
3.5
3
PCSR
variable. Hypothesis 2 predicts that CA positively moderates the relationship between PCSR
and Tobin’s Q. The positive relationship between PCSR and Tobin’s Q becomes stronger with
more CA. As seen in Model 5, the coefficient for the interaction between PCSR and CA is posi-
tive and significant (β = 0.14, p < .05). This result indicates that when a firm engages in more
CA, the effect of PCSR on Tobin’s Q strengthens, which is consistent with Hypothesis 2.
Hypothesis 3 predicts a stronger negative relationship between NCSR and firm financial per-
formance when more CA exists. In Model 5, the coefficient for the interaction between NCSR
and CA is negative and significant (β = −0.20, p < .05). This negative interaction suggests that
when a firm’s CA level is high, NCSR’s effect on Tobin’s Q is negative, as predicted in
Hypothesis 3.
Based on the results from Model 5, we plotted the interaction effect using one standard
deviation above and below the mean of CA. As shown in Figure 1, PCSR is more positively
associated with Tobin’s Q when CA is high than when CA is low. This interaction pattern is
consistent with our prediction and supports Hypothesis 2. Figure 2 presents an interaction
plot between NCSR and CA. As shown in this figure, NCSR is negatively associated with
Tobin’s Q when CA is high. However, the association becomes positive when CA is low.
Thus, Figure 2 confirms Hypothesis 3.
The results of Hypothesis 3 and Figure 2 may explain the insignificant main effect of
NCSR as predicted in Hypothesis 1b. The insignificant effect of NCSR on CFP implies that
the nature of NCSR is more complex than expected. On the one hand, NCSR as a “bad” deed
can be harmful to a firm’s financial performance by undermining firm image or reputation.
On the other hand, NCSR can also be beneficial by helping a firm save cost. Results of
Figure 2
Effects of Negative Corporate Social Responsibility on Tobin’s Q:
Contingent on Competitive Action
6.5
CA: High (+1 SD)

5.5
Tobin's Q
5
CA: Low (-1 SD)
4.5
3.5
3
NCSR
Hypothesis 3 and Figure 2 support this view on NCSR by demonstrating that the effect of
NCSR is negative when CA is high but positive when CA is low.
In summary, based on the meaning of Tobin’s Q, our findings indicate that firms with high
PCSR are expected to enjoy higher profit and are expected to enjoy even higher profit when
CA is high. By contrast, firms with high NCSR are expected to achieve high profit when CA
is low.
Robustness Check
We conducted a robustness check with size-adjusted CA as an alternative CA measure. In
fact, some companies are likely to be discussed more in the media than others.9 Thus,
although we followed the conventional data collection procedure in competitive-dynamics
literature, our measure of CA (i.e., publicly available visible actions) may mainly capture a
firm’s visibility in the press rather than its real CA. Especially, given that “the larger a firm
becomes, the more likely it is to catch the public’s eye” (Meznar & Nigh, 1995: 980), our CA
measure may reflect firm size. To address this concern, we used size-adjusted CA as an alter-
native CA measure. Size-adjusted CA (denoted as aCA) is generated by dividing CA by firm
size. The results from this measure are reported in Table 3.
Most results are consistent with those reported in Table 2. In detail, as shown in Model 2
in Table 3, PCSR is positively related to Tobin’s Q, but NCSR is insignificant. Notably,
Model 5, which is a full model that includes all interactions simultaneously, shows that the
interaction effects between PCSR and aCA and those between NCSR and aCA are also
Table 3
Effects of CSR and aCA (CA Adjusted by Size) on the Value of the Firm: Tobin’s Q
Variable Model 1 Model 2 Model 3 Model 4 Model 5
PCSRt — 8.61** 2.18 8.63** 2.38

(5.39) (1.11) (5.52) (1.14)
NCSRt — 0.10 0.53 4.01 3.75
(0.05) (0.23) (1.28) (1.36)
PCSRt × aCAt — — 2.14** — 2.08**
(3.70) (3.40)
NCSRt × aCAt — — — −1.82† −1.50*
(−1.89) (−1.99)
aCAt 0.13** 0.13** 0.02 0.15** 0.05
(2.61) (2.60) (0.49) (3.07) (0.97)
Advertising 2.01 3.77 3.81 4.18 4.15
intensityt (0.42) (0.79) (0.81) (0.88) (0.89)
R&D intensityt 4.28** 3.75* 3.44* 3.77* 3.46*
(2.65) (2.44) (2.20) (2.44) (2.20)
dum_Advertisingt 0.33 0.22 0.23 0.21 0.22
(1.39) (0.92) (0.97) (0.89) (0.95)
dum_R&Dt −0.39 −0.11 −0.23 −0.06 −0.19
(−1.10) (−0.33) (−0.73) (−0.20) (−0.64)
Firm sizet −0.25* −0.36** −0.36** −0.35** −0.35**
(−2.12) (−2.78) (−2.80) (−2.74) (−2.78)
Firm aget 0.00 −0.01 −0.01 −0.02 −0.02
(0.14) (−0.40) (−0.49) (−0.58) (−0.64)
Return on assetst 0.70* 0.67* 0.64* 0.69* 0.66*
(2.02) (2.09) (2.02) (2.08) (2.02)
Leveraget 0.02 0.09 0.14 0.07 0.11
(0.05) (0.27) (0.33) (0.18) (0.27)
Liquidityt −0.06† −0.06 −0.07† −0.06 −0.07†
(−1.66) (−1.50) (−1.90) (−1.56) (−1.94)
Intercept 4.10** 4.53** 4.93** 4.39** 4.80**
(5.06) (5.56) (6.04) (5.43) (5.94)
N 565 565 565 565 565
R2 0.21 0.24 0.26 0.24 0.26
Note: CSR = corporate social responsibility; CA = competitive action; PCSR = positive CSR; NCSR = negative
CSR. aCA is an adjusted CA scaled by firm size. The t statistics calculated with standard errors adjusted by firm- and
year-level clustering are presented in parentheses. Year dummy variables are included in all models.
†p < .10.
*p < .05.
**p < .01.
consistent with the results in Table 2. In summary, these results suggest that our findings are
robust to the alternative measure of CA and indicate that our measure of CA is distinct from
visibility.
Furthermore, to directly investigate any potential visibility effect, we tested Hypotheses
2 and 3 by replacing CA with firm size and assuming that firm size is an effective proxy for
the firm’s visibility. We find that the interaction between firm size and PCSR is positive and
significant but that the interaction between firm size and NCSR is insignificant, which is
different from the result for the interaction between CA and NCSR. These results demon-
strate that our CA differs from visibility. The results are available from authors upon request.
Discussion
In this study, we attempted to explore the complex relationship between CSR and CFP by
using CA as a contingency. Specifically, we first distinguished CSR into PCSR and NCSR
and then examined how the effects of PCSR and NCSR vary with CA. Using data on U.S.
software firms between 2000 and 2005, we find that PCSR is positively associated with CFP,
and this positive relationship is strengthened when the firm actively engages in CA. Results
indicate that a firm’s CA complements PCSR by augmenting the effect of PCSR on CFP. We
also find that NCSR harms a firm’s CFP when the level of its CA is high, but the negative
impact of NCSR is mitigated when the level of CA is lower. This result regarding the NCSR-
CFP link may indicate that although NCSR may be socially harmful, it might contribute to a
firm in a particular situation.
Our findings advance CSR literature in several ways. First, the theoretical argument and
the empirical findings in this paper emphasize that exploring CSR effects in relation with CA
is important in elucidating the mechanism through which CSR affects CFP. As a business
entity operating in a society, a firm is expected to fulfill both economic and ethical responsi-
bilities (Carroll, 1979; Carroll & Shabana, 2010). Given that both CA and CSR are firm
actions that primarily represent economic and ethical responsibilities, respectively, the cur-
rent study claims that a firm’s CA should be an important consideration in exploring the
performance implications of CSR. Our findings suggest that CA can be an important bound-
ary condition of the CSR-CFP link in addition to several contingencies examined by previous
studies (Bansal, 2003; Godfrey et al., 2009; Wang & Qian, 2011). In this sense, this study
adds to CSR literature by identifying a new contingency that explains the complex relation-
ship between CSR and CFP.
Second, our research is one of the few studies that decomposed CSR into PCSR and
NCSR and empirically examined the effects of both PCSR and NCSR on CFP simultane-
ously. Several studies on CSR have emphasized that PCSR and NCSR are different con-
cepts and should be distinguished from the other to gain a better understanding of the
CSR-CFP link (e.g., Kotchen & Moon, 2011; Muller & Kräussl, 2011; Strike et al., 2006).
Moreover, simultaneous investigation of PCSR and NCSR has been requested to delve
deeply into their differing dynamics (Muller & Kräussl, 2011). To the best of our knowl-
edge, this study is the first attempt to empirically demonstrate the distinctive effects of
PCSR and NCSR on firm performance: The effect of PCSR on firm performance is posi-
tively moderated by CA, whereas that of NCSR is negatively moderated by CA. These
results also suggest that both types of CSR actions should be separated when examining
CSR’s effects on CFP.
Third, this study sheds new light on the implications of NCSR for CFP. Although NCSR
is not the direct opposite of PCSR, its impact on CFP has been neglected in literature (e.g.,
Karnani, 2007; Muller & Kräussl, 2011). We find that NCSR does not necessarily decrease
performance; in a particular situation (e.g., when the level of CA is low in our study), NCSR
can actually help a firm increase its financial performance even though it may potentially
undermine social welfare. Thus, this result suggests that NCSR is not always an action that a
firm should avoid. With our finding, we do not claim that NCSR is either a desirable or an
undesirable action. Our result simply suggests a situation in which NCSR can be good for
financial performance.
Moreover, this study suggests potentially interesting dynamics in PCSR and NCSR.
Considering that we found a marginally significant positive correlation between PCSR and
NCSR, firms may use PCSR to cover up their NCSR (Kotchen & Moon, 2011). Thus, the
positive effect of NCSR when CA is low may be because PCSR is initiated to hide NCSR; a
firm engaging in NCSR also actively initiates PCSR to cover it.9 Thus, the positive relation-
ship between NCSR and firm performance when CA is low can be attributed to PCSR.
However, we found a negative relationship between PCSR and firm performance when CA
is low. This result indicates that the effects of PCSR and NCSR have different mechanisms
and suggests that engaging in more PCSR to cover up NCSR may not be an effective strate-
gic action for a firm.
Finally, our findings provide interesting and important practical implications. Prior stud-
ies on CSR have debated on whether firms should engage in CSR activities (e.g., Griffin &
Mahon, 1997; Orlitzky et al., 2003). Our study suggests that managers should consider
whether their firm actively engages in CA when it engages in PCSR or NCSR. Although
PCSR can contribute to CFP in general, its effect could be even greater if the firm is actively
conducting CA because CA would complement PCSR by fulfilling the firm’s economic
responsibility. Hence, to best capitalize on PCSR, managers need to check their firm’s level
of CA and consider PCSR an appropriate action when sufficient CA is already being imple-
mented. Otherwise, when CA is insufficiently implemented, saving cost with NCSR may
actually be a better strategic option.
Although we provide intriguing findings on CSR and its effects on firm performance,
some limitations exist and they raise the possibility of further studies. First, a future study can
generalize our findings with a sample of firms in multiple industries. Although the software
industry is an appropriate context in which to test our hypotheses, results from a test with a
multi-industry sample can be more generalizable. Similarly, a test with a sample of firms in
other industries may provide industry-specific implications on the CSR-CFP link and CA’s
moderating effect on this link. Second, CSR and CA have similar aspects, and thus, clearly
distinguishing between the two is sometimes difficult. In particular, cause-related marketing
or sponsorship simultaneously has both CSR and CA aspects. Moreover, some firms use CSR
as a key competitive weapon. We attempted to empirically distinguish these overlapping
aspects by excluding marketing actions from CA, because marketing actions are more likely
to overlap with CSR than other types of CA, such as new product introductions or technology
developments. We also excluded the product dimension score from the KLD database in
measuring CSR because this dimension shares similar characteristics with CA’s new-product
introduction. Moreover, we tried different combinations of CSR and CA measures (e.g., CA
with or without marketing actions and CSR with or without product dimension) and found
that the results from the diverse combinations are consistent. Although these additional anal-
yses showed that our results are robust, an alternative CSR measure, like the actual dollar
amount invested in CSR, may provide extra insights on performance implications of CSR
(cf. Godfrey et al., 2009). Thus, future research might be conducted to construct more direct
measures of CSR (including both PCSR and NCSR), which can generate a finer-grained
analysis of the combined effects of CA and CSR.
The findings of this study contribute to future research in several ways. First, future
research may delve more deeply into the meaning of NCSR to a firm and society (e.g., Muller
& Kräussl, 2011; Tang et al., 2015). We find that NCSR is not always harmful to a firm
because it can be beneficial in a particular situation. However, if the firm keeps using NCSR,
the costs of NCSR may outweigh the benefits by damaging the firm’s reputation and relation-
ships with different stakeholders. Therefore, more studies on NCSR and the situations in
which firms can benefit from NCSR should be conducted. Relatedly, dynamics between
PCSR and NCSR can be more deeply investigated by future research. Although our findings
suggest that PCSR and NCSR may have different mechanisms, a firm can engage in PCSR
to cover up NCSR (Kotchen & Moon, 2011). However, a firm with high PCSR could possi-
bly engage in more NCSR if it is satisfied with its PCSR. Thus, examining how PCSR and
NCSR influence each other, how PCSR is initiated to cover up NCSR, and how NCSR that
is engaged in after high PCSR affects a firm would be an interesting study that advances CSR
literature. Finally, further studies can examine the cooperative action of a firm as another
contingency that explicates the CSR-CFP link. Competition and cooperation are two vital
strategic options for firms (Chen, 2008). Moreover, cooperative action, like strategic alli-
ance, enables a firm to acquire valuable resources as CSR does. Thus, similar to CA, coop-
erative action may also influence CSR’s effects on financial performance. Compared with the
current study that focuses on CA, exploring whether the relationship between CSR and CFP
varies with cooperative action might be another fruitful future research direction.
Conclusions
In this study, we explored CA as a key contingency that determines the effects of CSR on
CFP. Arguing that CA is a firm’s action that fulfills its economic responsibility, we find that
the relationship between PCSR and CFP is moderated positively by CA and that NCSR is
moderated negatively by CA. With these results, this study emphasizes the importance of
examining CA in understanding the performance implications of CSR and paves the way for
a better understanding of contingencies when CSR is financially beneficial.
Appendix
Variable Operationalizations
Variable Measure
Tobin’s Q {(Total assets – common equity) + (common shares outstanding × share

price)} / total assets
Advertising intensity Advertising expense / total assets
R&D intensity R&D expense / total assets
dum_Advertising 1 if advertising expense is missing, 0 otherwise
dum_R&D 1 if R&D expense is missing, 0 otherwise
Firm size log(total assets)
Firm age Year t minus year recorded in the Center for Research in Security Prices
for the first time
Return on assets Income before extraordinary items / total assets
Leverage (Long-term debt + debt in current liabilities) / total assets
Liquidity Current assets / current liabilities
Notes
1. Legal responsibility indicates that a firm is required to follow the obligations placed on the business by the
laws and regulations of society where this firm operates (Carroll & Shabana, 2010). Given that a firm should obey
the law to operate in society, legal responsibility is a need that firms should meet. In this sense, legal responsibility
is not a domain of firm’s strategic decision. On the contrary, ethical responsibility is an obligation rather than need
because firms can still survive although this responsibility is not met. Thus, ethical responsibility is a domain of
firm’s strategic decision.
Discretionary responsibilities are purely voluntary activities of a firm as a member of society, such as philan-
thropic contributions and providing day care for working mothers (Carroll, 1979: 500). However, discretionary and
ethical responsibilities are hardly distinguished (Aupperle, Carroll, & Hatfield, 1985), and even the former is a part
of the latter (Schwartz & Carroll, 2003). Given these characteristics, we did not consider legal and discretionary
responsibilities.
2. Corporate social responsibility (CSR) can also be an action for economic responsibility (Jones, 1995).
However, CSR pursues social goals as well as an immediate financial interest. For example, cause-related marketing
activity is defined as a subset of CSR because of a concern for society (Varadarajan & Menon, 1988). In this sense,
CSR is considered an action for ethical responsibility rather than economic responsibility, although CSR does not
exclude an economic aspect. We thank one of the anonymous reviewers for specifying this issue.
3. Scholars have used the terms corporate social irresponsibility and negative CSR (NCSR) interchangeably to
refer to the negative aspect of CSR (Godfrey, Merrill, & Hansen, 2009; Kotchen & Moon, 2011; Muller & Kräussl,
2011; Strike, Gao, & Bansal, 2006).
4. Parentheses are present in the original.
5. The majority existing CSR studies using Kinder, Lydenberg, Domini, and Co., Inc. (KLD) data have com-
bined these two concepts into a single measure as an overall CSR of a firm. For example, the firm-level CSR score
in several existing CSR studies (e.g., Servaes & Tamayo, 2013; Waddock & Graves, 1997) is typically measured
by subtracting the total number of NCSR actions (concerns in KLD) from that of positive CSR (PCSR) actions
(strengths in KLD). Contrary to these studies, the present study considers strengths in KLD as PCSR and concerns
in KLD as NCSR and tests the differential effects of PCSR and NCSR on financial performance.
6. The name of these data was changed to MSCI ESG STAT in 2011. For ease of presentation, we use the previ-
ous name.
7. We winsorized the continuous variables used in our regression models at the top and bottom 1% to eliminate
the influence of potential outliers.
8. See Petersen (2009) for a detailed discussion of why double-clustered standard errors must be used to correct
serial and cross-sectional residual correlations in panel data. We also tested the models using robust regression. The
results with respect to the proposed hypotheses were substantially identical to the presented results.
9. We appreciate this insight from the anonymous reviewers.
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Effects of Corporate Social Responsibility

Keywords: positive CSR; negative CSR; competitive action; financial performance

Theory and Hypotheses

PCSR, NCSR, and CFP

Hypothesis 1a: A positive relationship exists between PCSR and CFP.

By contrast, as a socially undesirable action, NCSR may be negatively associated with a

Hypothesis 1b: A negative relationship exists between NCSR and CFP.

Interaction Effects Between PCSR and CA on CFP

to a firm’s economic responsibility by focusing on whether a firm is able to provide goods or

Interaction Effects Between NCSR and CA on CFP

Model and Estimation Method

Tobin’s Qit+1 = α + β1PCSRit + β2NCSRit + β3PCSRit × CAit + β4NCSRit × CAit +

1. Tobin’s Qt+1 2.71 1.56

Variable Model 1 Model 2 Model 3 Model 4 Model 5

PCSRt — 8.24 5.03 8.27** 5.24*

5 CA: Low (-1 SD)

CA: High (+1 SD)

PCSRt — 8.61 2.18 8.63 2.38

Tobin’s Q {(Total assets – common equity) + (common shares outstanding × share

Carroll, A. B. 1979. A three-dimensional conceptual model of corporate social performance. Academy of

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