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SOQ0010.1177/1476127018805252Strategic OrganizationGras and Krause

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Strategic Organization

When does it pay to stand

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DOI: 10.1177/1476127018805252
https://doi.org/10.1177/1476127018805252
contingencies in the journals.sagepub.com/home/soq

corporate social performance–

corporate financial
performance relationship

David Gras
The University of Tennessee, Knoxville, USA

Ryan Krause
Texas Christian University, USA

Abstract
We develop a competitive contingency model of the relationship between corporate social performance
and corporate financial performance, focusing on the moderating effects of industry-based factors. We
conceptualize corporate social performance as a form of strategic differentiation and predict that the
positive link between corporate social performance and corporate financial performance is strongest when
a firm competes in an environment that is not conducive to corporate social performance. Analyses of data
from roughly 2500 publicly traded firms between 2002 and 2009 support the moderating effects of industry
munificence and social orientation. We discuss the implications of our contingency model for firms seeking
a competitive advantage through corporate social performance.

Keywords
competitive advantage, corporate social performance, environmental contingencies, stakeholders

Introduction
Since the development of stakeholder theory, management scholars have devoted considerable
research attention to the concept of corporate social performance (Aguinis and Glavas, 2012).
Interest in the concept is predicated on the assumption that firms serve multiple stakeholders (i.e.
beyond just shareholders) and that firms’ effectiveness in serving these constituencies constitutes a
meaningful outcome of corporate activity (Wood, 1991). Almost as soon as the concept emerged in

Corresponding author:
David Gras, Haslam College of Business, The University of Tennessee, Knoxville, 916 Volunteer Boulevard, Knoxville,
TN 37996, USA.
Email: dgras@utk.edu
2 Strategic Organization 00(0)

the management literature, scholars began to seek out an empirical link between corporate social
performance (CSP) and corporate financial performance (CFP), relying largely on instrumental
stakeholder theory’s prediction that effectively stewarding stakeholders’ interests will produce
positive financial returns (e.g. Donaldson and Preston, 1995; Waddock and Graves, 1997). While
meta-analyses have shown a slight positive link between CSP and CFP (e.g. Margolis et al., 2007;
Orlitzky et al., 2003; Van Beurden and Gössling, 2008; Wang et al., 2016), the theoretical and
empirical support for such a relationship remains the subject of much debate.
Among the myriad studies investigating the CSP–CFP relationship, some scholars have moved
beyond the search for a strong overall relationship and instead proposed contingency factors that
strengthen or weaken the relationship. The list of hypothesized boundary conditions comprises a
wide array of disparate factors, including firm innovativeness (Hull and Rothenberg, 2008), tem-
poral consistency (Wang and Choi, 2013), and firm size (Orlitzky, 2001). Largely absent from this
line of inquiry, however, are factors related to the competitive context in which the firm operates.
CSP is, at its root, a form of differentiation or competitive positioning (Mackey et al., 2007; Russo
and Fouts, 1997; Siegel and Vitaliano, 2007), and thus if scholars are to understand the conditions
under which CSP as a form of competitive positioning leads to superior CFP, they must take into
account the business environment in which the firm competes. The prediction of a CSP–CFP link
is predicated on the assumption that creating value for the firm’s multiple stakeholders increases
those stakeholders’ willingness to participate in the firm’s business ecosystem, thus increasing the
overall value of the firm (Priem et al., 2013; Tantalo and Priem, 2016). Extant research, however,
has yet to empirically determine which external factors impact the value that CSP creates for
stakeholders.
To address this gap in the literature, we develop a competitive contingency model of the rela-
tionship between CSP and CFP. We focus on a firm’s industry as the boundary of its competitive
landscape, consistent with related research, and theoretically derive hypotheses predicting the
moderating effects of industry dynamism, munificence, and complexity on the CSP–CFP relation-
ship, in line with prior works such as Aragón-Correa and Sharma (2003), Goll and Rasheed (2004),
and Chen et al. (2017). We further develop two new contingency factors that, while used previ-
ously as control variables, have garnered little to no theoretical explication: industry social orienta-
tion and whether or not the industry is high tech. Archival data from nearly 3000 publicly traded
US firms indicate that munificence, industry social orientation, and industry technology levels play
a role in the CSP–CFP relationship.
Our study makes two primary contributions to extant CSP literature. First, we empirically
test Aragón-Correa and Sharma (2003) predictions regarding the moderating influence of
munificence, dynamism, and complexity on the CSP–CFP relationship. The empirical evidence
supports their predictions regarding munificence yet fails to support their predictions regarding
dynamism and complexity. Second, we take a common control variable in CSP studies—indus-
try social orientation—as well as an increasingly salient industry demarcation—high tech—and
theorize their salience as moderators of the CSP–CFP relationship. Our findings confirm both
variables’ importance as boundary conditions of CSP’s influence on firm outcomes and set the
stage for future research on these topics. Beyond advancements to the CSP literature, we pro-
vide practical guidance to managers on when investment of resources into CSP impacts the
bottom line. Prior research is equivocal as to the effect of CSP on CFP (e.g. Orlitzky et al.,
2003; Van Beurden and Gössling, 2008; Wang et al., 2016), but we identify competitive condi-
tions under which CSP is beneficial, ineffective, or detrimental. We thus suggest that managers
make CSP investment decisions based, to some degree, on the competitive context in which
their firm operates.
Gras and Krause 3

Theory and hypotheses

The CSP–CFP relationship and the competitive environment
Corporate social responsibility occurs when companies voluntarily integrate social and environ-
mental concerns with their business operations and interactions with stakeholders (Commission of
the European Communities (CEC), 2001). CSP, in turn, may be explained as the degree to which
companies successfully implement corporate social responsibility activities. Success in this domain
is often ambiguous, or at least, difficult to fully capture (Nason et al., 2018), yet many argue that
stakeholders are central in establishing and rewarding success in social performance (e.g. Carroll,
1991; Clarkson, 1995). Instrumental stakeholder theory predicts that by attending to stakeholders’
interests, firms will ultimately benefit financially by creating a sustainable competitive advantage
(Donaldson and Preston, 1995). There are several mechanisms through which this relationship is
theorized to manifest, such as customers’ increased willingness to pay for products from socially
responsible companies (e.g. Luo and Bhattacharya, 2006), employees’ increased willingness to
work for—and put forth effort at—companies that prioritize employee interests (e.g. Turban and
Greening, 1997) or simply stakeholders’ increased ability to differentiate one firm from another
(Hull and Rothenberg, 2008).
Regardless of the specific mechanism, instrumental stakeholder theory suggests a positive rela-
tionship between CSP and CFP. As such, considerable empirical analysis has been devoted to test-
ing this basic relationship and has yielded mixed results (e.g. Koh et al., 2014; Waddock and
Graves, 1997). Meta-analytic reviews of the literature have shown a small but significant positive
relationship, lending uneasy support for the theory’s most foundational tenet (e.g. Margolis et al.,
2007; Orlitzky et al., 2003; Van Beurden and Gössling, 2008; Wang et al., 2016).
In this study, we adopt an instrumental stakeholder theory perspective, but we refrain from re-
testing the theory’s primary prediction. The extant literature seems to have reached a consensus
that creating value for stakeholders through CSP does not universally lead to higher CFP, although
it does under certain conditions. For example, Wang and Choi (2013) argue that temporal consist-
ency is a salient determinant of whether or not CSP influences CFP. Hull and Rothenberg (2008)
find CSP has the greatest impact on CFP in low-innovation firms and in industries with little dif-
ferentiation. Drawing on the resource-based view, Russo and Fouts (1997) argued that the link
between corporate environmental performance (a dimension of CSP) and CFP is stronger within
high-growth industries.
A central and enduring tenet of strategic management research is that the effect of organiza-
tional actions on performance is largely dependent on environmental factors (Drazin and Van de
Ven, 1985; Tosi and Slocum, 1984), and competition is among the most salient attributes of a firm’s
task environment (Dess and Beard, 1984; Keats and Hitt, 1988). Scholars across the strategic man-
agement field have developed and tested models predicting that industry characteristics moderate
the performance effects of a wide range of firm strategies and structures, including board structure
(e.g. Boyd, 1995), exploration and exploitation (e.g. Uotila et al., 2009), and CEO tenure (e.g.
Henderson et al., 2006), to name only a few. While firm-level and stakeholder-level contingency
factors undoubtedly impact the strategic value of CSP, such factors provide at best an incomplete
picture of a firm’s strategic context. Competition influences nearly all strategy formulation, as well
as the effectiveness of formulated strategies. It is somewhat surprising, then, that there exists little
empirical research on how competitive factors impact the CSP–CFP relationship. As such, we see
a vital need for a theoretical model of the CSP–CFP link that accounts for the competitive context
in which a firm operates.
4 Strategic Organization 00(0)

Industry task environment

The salience of task environments on organizational activities and outcomes has been theoretically
and empirically established for decades (Aldrich, 1979; Castrogiovanni, 2002). The discourse in
this literature has not been whether or not the environment influences organizations but instead on
which dimensions of the task environment are most pertinent. While a number of dimensions have
been identified, the literature has largely coalesced around, and embraced, three important ones:
munificence, dynamism, and complexity (Dess and Beard, 1984; Keats and Hitt, 1988). Scholars
have acknowledged the influence of these three industry attributes on the effectiveness of a number
of strategic decisions, including board leadership structure (Boyd, 1995) and CEO scanning
emphases (Garg et al., 2003). Although each industry attribute reflects a different aspect, all three
fundamentally indicate the difficulty—or in the case of munificence, the ease—with which firms
compete for resources and stakeholder participation in their industry. In their conceptual paper,
Aragón-Correa and Sharma (2003) developed a contingency model wherein dynamism, munifi-
cence, and complexity moderate the effectiveness of proactive corporate environmental strate-
gies—a specific form of CSP—in generating competitive advantage. Beyond their work, scholars
have argued that varying levels of CSP activities may be due to stakeholder expectations (e.g.
Rowley and Berman, 2000; Sweeney and Coughlan, 2008). Rowley and Berman (2000) argue that

Social performance must be defined according to the social context. The number and types of stakeholders
surrounding a given set of firms are unique to the particular social environment—the organization field,
industry, stakeholder network or issues domain (whichever boundaries are used to identify the relevant
environment). The nature of firm responsibilities within the specified boundaries are determined by the set
of issues and the needs and rights of stakeholders involved. (Emphasis added; p. 407)

On the assumption that CSP activities are, at least in part, driven by stakeholder expectations,
we argue that industries with certain levels of dynamism, munificence, complexity, overall social
orientation, and technological levels will result in varying stakeholder expectations, which then
alter the relationship between CSP and CFP.

Industry munificence
The term “munificence” refers to an industry’s “resource abundance and resulting capacity to support
growth” (Keats and Hitt, 1988: 572). In industries where resources are scarce and growth is slow or
non-existent, firms face a greater need to differentiate themselves from their competitors (Aldrich,
1979) as those firms unable to differentiate themselves will be unable to secure participation from a
diminishing, yet essential, pool of available resource providers (Staw and Szwajkowski, 1975). Firms
in resource-poor industries face a lack of exploitable opportunities (Covin and Slevin, 1989), envi-
ronmental hostility (Miller and Friesen, 1983), and less organizational slack (Cyert and March, 1963),
and the managers of such firms face a higher risk of turnover (Wiersema and Bantel, 1993).
Given that resource-scarce environments increase the importance of building market share—
since the number of firms the industry can support is shrinking—it is imperative for firms in such
environments to differentiate themselves from their competitors (Homburg et al., 1999). As a
widely acknowledged form of strategic differentiation, CSP should lead to a greater competitive
advantage, and thus to superior CFP, when differentiation is most important (Mackey et al., 2007;
Russo and Fouts, 1997; Siegel and Vitaliano, 2007).
On the other side of the spectrum—within highly munificent, resource-abundant environments,
we expect two things. First, we expect a greater number of competitors to engage in CSP, given the
Gras and Krause 5

slack afforded to do so. While CSP may prove to be cost-neutral or even profitable after enactment,
pursuing substantial CSP in the first place entails the investment of substantial resources (e.g.
Aupperle et al., 1985; Walters et al., 2010; Wood and Jones, 1995) on activities such as publicizing
the social performance, training employees on executing social initiatives, and philanthropic dona-
tions. Notably, the greater the expenses endured in developing CSP, the more difficult it will be—on
the whole—for competitors to imitate the strategy (Barney, 1991; Porter, 1996). However, within
resource-rich environments, imitation of costly strategies is more attainable as the means to imitate
may be more easily garnered (Castrogiovanni, 1991). Thus, elaborate CSP activities—particularly
successful ones—should be less valuable over time as competitors mimic them.
Second, stakeholders in munificent industries may expect greater CSP from firms therein
than those in resource-scarce industries. In low-resource environments, firms and stakeholders
are more focused on survival, conservation, and core products and processes (Goll and Rasheed,
2004). Thus, a firm may be forgiven by stakeholders for not heavily pursuing other activities,
such as CSP. In munificent environments, by contrast, firms have discretionary resources
(Castrogiovanni, 1991), and stakeholders may believe that if the firms are drawing and resources
from society, they should have an obligation—perhaps a moral obligation—to give back
(Barnett, 2007). This, in turn, should lead to a greater proliferation of CSP in resource-rich
environments, resulting in less differentiation (and accompanying benefits) for those that dif-
ferentiate in munificent industries.
Holistically, we suggest that the financial benefits may be muted in munificent environments,
and formally hypothesize,

Hypothesis 1. The positive relationship between CSP and CFP is negatively moderated by
industry munificence.

Industry dynamism
Environmental dynamism, also frequently referred to as instability, volatility, or turbulence, is
the degree of unpredictable change in an organization’s industry (Dess and Beard, 1984). At the
heart of the dynamism concept is uncertainty within the business environment. In uncertain
industries, “changes can come from anywhere without notice and produce consequences unan-
ticipated by those initiating the changes and those experiencing the consequences” (Pfeffer and
Salancik, 1978: 68). Dynamic environments necessitate “novelty, complexity, and open-ended-
ness” (Mintzberg et al., 1976: 250), increased information processing among decision makers
(Galbraith, 1973), greater decision speed (Eisenhardt, 1989), and strategic adaptability
(Burgelman, 1991).
We contend that CSP will be rarer within dynamic industries and thus will differentiate a firm
more heavily, and yield greater rewards. Our logic is three-fold. First, and simply put, dynamic
industries occupy managers’ cognitive resources (Hough and White, 2004). Keeping up with stake-
holder demands, making rapid decisions and adapting to ever-changing circumstances should con-
sume cognitive resources that might otherwise be employed. In essence, limited resources are
reserved to dedicate to alternative pursuits, including peripheral ones, such as CSP. Second, there
are arguments, built upon contingency theory (Lawrence and Lorsch, 1967), which suggest that in
dynamic environments, success is determined by adopting more differentiated structures and
sophisticated integration devices (Aragón-Correa and Sharma, 2003). Differentiated CSP activities
may comprise such structures and devices (Prakash, 2000), leading to improved chances of suc-
cess. Furthermore, the greater the environmental dynamism and uncertainty, the greater the
6 Strategic Organization 00(0)

difficulty for competitors to obtain the information they need to duplicate, essentially producing an
interaction effect whereby CSP is more effective within dynamic environments.
Third, greater CSP may result in greater legitimacy and improved reputation among stakehold-
ers (Sharma and Vredenburg, 1998), which may provide some degree of stable relations in an
unstable environment (Goll and Rasheed, 2004). Such stable relations may result in steady influxes
of resources, information, and routines from stakeholders, which may negate some of the inherent
uncertainty in dynamic environments. As a result, those firms that differentiate themselves in envi-
ronments which are not conducive to doing so should enjoy a stronger relationship between CSP
and CFP. Taken together, we expect that

Hypothesis 2. The positive relationship between CSP and CFP is positively moderated by indus-
try dynamism.

Industry complexity
Industry complexity refers to the “proliferation and diversity of factors and issues” affecting firms
in a given industry (Aragón-Correa and Sharma, 2003: 79). The central assumption underlying the
commonly utilized conceptualization of industry complexity is that variations in the number, diver-
sity, and distribution of competitors within an industry affect a focal organization’s information-
processing requirements (Dess and Beard, 1984; Keats and Hitt, 1988), such that firms in less
concentrated industries must process a wider range of available information as they attempt to
compete with several different types of competitors. A wide distribution of competitors, therefore,
makes an industry more complex. Complex environments challenge “managers’ cognitive abilities
to grasp and comprehend important relationships among many environmental sectors that differ
from one another” (Walters et al., 2010: 577). In contrast, firms in relatively simple environments
can establish processes, routines, and heuristics for competing with other firms as the competitive
landscape is far easier to understand.
As complexity consumes managerial cognitive resources, it, like dynamism, should result in
lower pursuit of CSP within highly complex industries. This allows firms that engage in CSP,
despite the challenges of a complex environment, to stand out among crowded industries. In turn,
they should reap the rewards of meaningful differentiation (Brammer and Millington, 2008).
Furthermore, because firms in complex environments have greater difficulty creating a sustain-
able strategic position, those that are able to do so with socially oriented strategies are likely to
enjoy a stronger competitive advantage (Aragón-Correa and Sharma, 2003). There are several
reasons for this. For one, the complex environment obscures the firm’s actions from the view of
competitors, increasing information asymmetry among competitors and reducing the imitability of
a given firm’s strategy. Information asymmetry also exists between the firm and its various stake-
holders in a complex environment. Such asymmetry creates a barrier to stakeholder participation,
and instrumental stakeholder theory suggests that CSP overcomes this barrier by demonstrating
value to stakeholders, thus increasing their participation in the firm’s ecosystem (Jones, 1995;
Tantalo and Priem, 2016).
In a complex environment, CSP accommodates what some scholars term “credence character-
istics” (Brush and Artz, 1999). Credence characteristics are firm attributes that are difficult for
external stakeholders to evaluate. By demonstrating social responsibility and developing a reputa-
tion as a socially responsible organization, a firm can develop credence with stakeholders regard-
ing its behavior. This reduces the uncertainty that stakeholders face in engaging with the firm,
which increases the value of an exchange, thereby creating superior CFP. This effect, while present
Gras and Krause 7

to some degree in all environments, should be strongest in complex industries due to the greater
information asymmetry. Therefore, we offer the following hypothesis:

Hypothesis 3. The positive relationship between CSP and CFP is positively moderated by indus-
try complexity.

Industry social orientation

While a firm’s task environment moderates the performance effects of most forms of strategic
differentiation and thus is important to include in a competitive contingency model of the CSP–
CFP relationship, it is also important to account for the nature of the competitive environment
with regard to the specific form of differentiation being examined. As such, we study an addi-
tional dimension of the firm’s competitive environment; one that is tailored to the study of CSP.
Specifically, we define industry social orientation as the collective CSP of all firms in an industry.
We argue that the extent to which the collective of organizations within an industry is socially
oriented will influence the impact that CSP activities by a focal organization will have on CFP.
Numerous prior works have argued that CSP and the activities related to CSP differ systemati-
cally from industry to industry. Boutin-Dufresne and Savaria (2004) argue that firms in a certain
industry may be more or less socially responsible, simply by the nature of their activities. As an
example, heavy manufacturing industries or industries that exploit natural resources may unavoid-
ably cause more environmental degradation than service industries. Cottrill (1990) argues that
“any investigation of CSR that fails to incorporate industry level realities […] will be fatally defi-
cient” (p. 723). Cottrill further states that some industries are recognized for having low levels of
ethics, morality, and socially responsible behavior and that companies competing in such industries
may not be able to reap cost-covering rewards from CSP, at least not without the help of external
forces (e.g. governments). Waddock and Graves (1997), as well as Sweeney and Coughlan (2008),
find significant differences in CSP disclosure and reporting across numerous industries. Taken
together, prior research has established that the extent of CSP pursued differs among the various
industries. This difference should, in turn, impact the effectiveness of firm-level CSP to produce a
firm-level competitive advantage.
In essence, this is a more direct hypothesis and test of the differentiation which is interwoven
between all of our hypotheses. That is, the more competitors are either mimicking or conducting
similar CSP activities, the less firms pursuing CSP will stand out as stand-up industry participants.
Instead, stakeholders, over time, should become desensitized, to a degree, by commonly conducted
CSP activities. Thus, in industries high in philanthropy, such as the food and beverage industry, or
the printing and publishing industry (Forbes, 2007), firms would have to devote a tremendous
amount of resources to meet their competitors’ CSP, let alone surpass it far enough so that stake-
holders take notice and reward the firm. Conversely, in industries with poor social reputations,
such as cleaning products (largely due to the harshness of chemicals on the environment, as well
as on humans and animals), a firm like Method may stand out quite distinctly by offering some
more environmentally friendly products (Mielach, 2011).
We propose that industry social orientation negatively moderates the relationship between CSP
and CFP. That is, we predict stakeholders will respond more strongly to CSP when CSP is less
prevalent in the industry:

Hypothesis 4. The positive relationship between CSP and CFP is negatively moderated by
industry social orientation.
8 Strategic Organization 00(0)

High-tech industry
High-tech industries are those that involve advanced methods, modern equipment, and cutting-
edge products. Such industries are qualitatively different from their lower technology counterparts
(Kobrin, 1991). In particular, firms in high-tech industries are mired in characteristics which should
impede CSP activities. High-tech firms must tussle with short product life cycles, continual com-
petition for innovations and market share, heavy research and development (R&D) investments,
higher uncertainties, and greater risk overall (Qian and Lee, 2003). As with dynamism and com-
plexity, such characteristics consume the bounded cognitive resources of decision makers and
limits the degree to which managers may focus on any activities other than survival and continual
technological development. The greater the pressure there is to innovate products, the less a firm
may dedicate time, attention, and resources to other activities. As such, we expect CSP to be rarer
in high-tech industries, and thus a point of differentiation and source of value relative to competi-
tors, for those firms with high CSP activities.
Beyond differentiation, we argue there is an amplifying factor specific to high-tech industries.
Namely, high-tech industries feature more prominently in the public eye, given the significantly
higher media attention their firms receive and the inherent “glamour” associated with technology
(Peress, 2008). As such, it may be argued that all manner of stakeholders, including investors,
customers, and employees, will be more aware if a high-tech firm engages in CSP, compared with
their lower tech counterparts. Such awareness should magnify the positive effect of differentiated
CSP activities (Du et al., 2010). Formally stated,

Hypothesis 5. The positive relationship between CSP and CFP is stronger in high-tech
industries.

Methods
Sample and data
Our data are primarily drawn from two sources—the Kinder, Lydenberg, Domini & Co. (KLD)
database and the Compustat database. KLD’s database is the most established and widely accepted
source of data on CSP and stakeholders in the premier management journals (cf. Agle et al., 1999;
Coombs and Gilley, 2005; David et al., 2007). KLD is an investment advisor for a socially oriented
mutual fund and have historically used the collected data as a basis for investment decisions and
advice (Harrison and Freeman, 1999). The KLD data are drawn from a variety of sources including
annual reports, annual surveys, proxy statements, quarterly reports, and external data sources such
as news articles, reports by third parties and academic articles. Firms are rated on several catego-
ries, including employee relations, products, community relations, environmental performance,
diversity issues, and human rights issues. Within each category, KLD identifies “strengths” and
“concerns,” for which every firm is given a score of “1” or “0” based on the presence of the
strength or concern.
Our sampling window is from 2002–2009, largely based on changes in KLD’s coverage of firms
and measures employed (Hart and Sharfman, 2015). Beginning in 2002, KLD expanded coverage
to roughly three times the number of firms previously covered. Following prior work, we ended
our study window in 2009 because KLD’s inventory of variables changed significantly beginning
with the 2010 data (e.g. Chin et al., 2013). We matched all available firm-year observations from
KLD to data from Compustat. Our dependent variable, moderator variables, and control variables
are drawn from Compustat, while our independent variables are drawn from KLD.
Gras and Krause 9

Dependent variables
We follow several recent CSP studies (e.g. Cavaco and Crifo, 2014; Petrenko et al., 2016) by
employing return on assets (ROA) to measure performance. However, given our theorizing and
hypotheses, all of which are based on performance relative to competitors (Roberts and Dowling,
2002), we adjusted ROA based on industry performance. This was accomplished in three stages.
First, we calculated the ROA for each firm-year as net income divided by assets, and multiplied by
100—reflecting percentage values—in order to aid interpretation of model coefficients. Second,
we calculated the average ROA for all firms in an industry, identified by two-digit Standard
Industrial Classification (SIC) codes in a given year. Third, we subtracted firm ROA from industry
ROA, to arrive at industry-adjusted ROA.

Independent variable
Our independent variable is firm CSP. We rely on an additive measure of KLD categories to
assess CSP, consistent with prior research (e.g. Hillman and Keim, 2001; Jayachandran et al.,
2013). We operationalize this construct through subtracting firm concerns from strengths in the
KLD categories of Employee Relations, Product, Community, Governance, Diversity,
Environment, and Human Rights. Examples of strengths within these categories include if the
company gives over 1.5% of net earnings before taxes to charity, and the company maintains a
no-layoff policy. Examples of concerns include if the company has paid substantial fines or civil
penalties from affirmative action controversies or has made significant reductions in its work-
force in recent years. Notably, the combinatory method of subtracting concerns from strengths
been the subject of debate in the CSP literature, with some scholars arguing that strengths and
concerns should be examined separately (e.g. Chatterji et al., 2009). Yet, we follow the two-fold
logic offered by Wong et al. (2011) in defending and employing the combined measure. First, the
authors argue that in forming a CSP strategy, managers conjointly attempt to create a balance
between doing well and minimizing harm. Relatedly, other scholars have argued that firms often
attempt to make up for concerns by developing strengths in other areas (e.g. Deckop et al.,
2006). Second, the combinatory measure is extraordinarily common in prior CSP work (Wong
et al., 2011), and therefore, using the measure allows us to directly compare results to those in
the studies upon which we are building.

Moderator variables. We followed Keats and Hitt (1988) in constructing our moderator variables of
dynamism, munificence, and complexity. Environmental munificence refers to the abundance of
resources within an industry. Following Keats and Hitt (1988), we calculated the growth in net
sales over the past 5 years for each industry (2-digit SIC) in each year of observation by regressing
total industry sales on time and retaining the regression coefficient. Higher values correspond to
more munificent environments. In order for the coefficients to be displayed within our tables, we
divided the values by 10,000. Environmental dynamism refers to volatility or instability in an
organization’s task environment (Dess and Beard, 1984). Following Keats and Hitt (1988), we
measured dynamism using the coefficient standard errors produced from the regression model used
to create the munificence measures. Higher values correspond to more dynamic environments.
Environmental complexity refers to the concentration of firms within a particular industry. We
adopted a dynamic measure of industry concentration (e.g. Grossack, 1965) which “provides for
comparability across a variety of diverse industry environments” (Keats and Hitt, 1988: 579). The
variable is a 5 year period regression of terminal year market shares of all firms in a given industry
on their shares in the initial year (see the appendix in Keats and Hitt (1988) for a detailed
10 Strategic Organization 00(0)

description). Those industries higher on the complexity variable are trending toward a composition
of numerous and varied competitors, whereas those lower on the complexity variable are trending
toward more oligopolistic or monopolistic industry structures.
The industry social orientation captures the overall social performance of an industry as a
whole. We measured industry social orientation as the average KLD strengths minus concerns for
all firms within a two-digit SIC code. Finally, we employ Loughran and Ritter’s (2004) classifica-
tion of which industries are coded as high tech and which are not. Examples of industries coded as
high tech are “electronic computers,” “optical instruments and lenses,” and “radiotelephone com-
munications.” High-tech industries are coded as “1”; others are coded as “0.”

Control variables
We include several control variables in our models to account for alternative predictors of CFP.
First, we control for the size of the firm through the total number of firm employees (Agarwal,
1979; Calof, 1994), measured in thousands. Second, we control for the firm risk, calculated as the
ratio of total long-term debt to total book value of equity (Graves and Waddock, 1994). Third, prior
research has shown that controlling for both R&D intensity and advertising intensity is critical in
studying the CSP–CFP relationship, as spurious correlations may otherwise result (McWilliams
and Siegel, 2000). R&D intensity is operationalized as expenditures on R&D divided by revenue.
Advertising intensity is operationalized as advertising expenditures divided by revenue. We also
control for organizational slack, given that slack resources may allow for greater levels of CSP
activities (Bansal, 2005). Slack is operationalized as current assets divided by total assets. We fur-
ther follow Russo and Fouts (1997) in controlling for and operationalizing capital intensity as the
ratio of assets to sales. Finally, as our data span several time periods, we account for macro-eco-
nomic conditions by including a dummy variable for each year in our sample (Certo and Semadeni,
2006).

Method of analysis
As our sample includes multiple observations per firm over time, we needed to select a method of
analysis that accounts for the non-independence of error terms. We elected to use the generalized
estimating equation (GEE) method developed by Liang and Zeger (1986). This analytical tech-
nique has recently become well established in longitudinal studies and can effectively account for
unobserved differences among firms as well as intertemporal non-independence (e.g. Henderson
et al., 2006; Wowak et al., 2011). The method requires the specification of a link function, a distri-
bution family, and an error correlation structure (Ballinger, 2004). Given that our dependent vari-
able is normally distributed and continuous, we specified a normal (Gaussian) distribution family
and identity link function. We further elected to use an exchangeable error correlation structure
given our limited window of observation and the absence of any apparent autocorrelation. Post hoc
tests employing autoregressive and independent error structures did not produce materially differ-
ent results.
From a theoretical standpoint, it is important that we use a method of analysis that permits the
testing of between-firm effects. Our theory predicts differences among firms—rather than within
firms over time—driven primarily by differences in firms’ CSP and competitive circumstances.
Competitive conditions—and, to a lesser extent, CSP—do not change substantially over time for
most firms. Industry task environment variables, in particular, are calculated based on moving
5 year periods. Thus, it would not be theoretically meaningful to test our hypotheses predicting
between-firm differences with a method that permits only within-firm tests, such as fixed-effects
Gras and Krause 11

regression. In contrast, GEE permits the type of between-firm comparisons we need to test our
theory, while also accounting for possible within-firm error correlation.

Results
Table 1 contains the means, standard deviations, and correlations for our variables of interest. For
the sake of parsimony, we omit the year dummy variables, yet these variables were included in all
of our analyses. Table 2 contains the results of our analyses, with industry-adjusted ROA as the
dependent variable. Model 1 is the baseline models predicting ROA, with only control variables
and CSP included. Models 2–6 test our hypotheses and include the control variables, independent
variables and interaction effects.
Hypothesis 1 predicts that the positive relationship between CSP and CFP is negatively moder-
ated by industry munificence. As shown in Model 2, the interaction term between CSP and munifi-
cence is both negative and significant (β = –0.00, p < 0.05) when predicting ROA. To aid
interpretation, we plot the interaction effect in Figure 1. As demonstrated in the figure, CSP is
much more beneficial for organizations in a resource-scarce (low munificence) environment. For
organizations in a highly munificent environment, CSP has a weaker effect. Overall, we find sup-
port for Hypothesis 1.
Hypothesis 2 predicts that the positive relationship between CSP and CFP is positively moder-
ated by industry dynamism. As shown in Model 3, the interaction term between CSP and dyna-
mism is negative and not significant (β = –0.35, p > 0.10). Therefore, we find no evidence for the
effect predicted in Hypothesis 2.
Hypothesis 3 predicts that the positive relationship between CSP and CFP is positively moder-
ated by industry complexity. As shown in Model 4, the interaction term between CSP and complex-
ity is not significant (β = 0.57 p > 0.10). Thus, we find no support for Hypothesis 3.
Hypothesis 4 predicts that the positive relationship between CSP and CFP is negatively moder-
ated by industry social orientation. As shown in Model 5, the interaction of CSP and industry social
orientation is positive and significant (β = 0.32, p < 0.01). To aid interpretation of the effect, we
plot the interaction in Figure 2. As shown in the figure, the positive relationship between CSP and
CFP is far more pronounced in industries with high social orientation than in industries with low
social orientation. Overall, we find support for the opposite direction of what we predicted in
Hypothesis 4.
Hypothesis 5 predicts that the positive relationship between CSP and CFP is positively moder-
ated by high-tech industries. As shown in Model 6, the interaction of CSP and high tech is positive
and significant (β = 0.72, p < 0.01). To aid interpretation of the effect, we plot the interaction in
Figure 3. As shown in the figure, the positive relationship between CSP and CFP are stronger for
those in high-tech industries, whereas low-tech industries display moderate improvement through
additional CSP. Overall, we find support for Hypothesis 5.

Robustness checks
We conducted several additional tests to determine the robustness of our results. First, to rule out
the possibility of multicollinearity, we obtained the variance inflation factors for our variables of
interest, and none exceeded a value of 3, indicating that multicollinearity is not an issue. Second,
we ran our GEE models using an autoregressive error correlation structure and an independent
error correlation structure (Ballinger, 2004), and the results did not change.
Next, we employed an alternative operationalization of the CSP variable. Waddock and Graves
(1997) developed a commonly cited operationalization, whereby subject matter experts assigned
 12

Table 1. Descriptive statistics and correlations among variables of interest.a

Mean SD 1 2 3 4 5 6 7 8 9 10 11 12
1 ROA, industry- 0.85 25.74 1.00
adjusted
2 CSP −0.50 2.11 0.03 1.00
3 Dynamism 0.14 0.10 −0.05 0.08 1.00
4 Munificence 3.48 3.32 −0.06 0.05 0.48 1.00
5 Complexity 1.01 0.22 0.01 0.02 0.02 −0.01 1.00
6 Industry social −0.50 0.73 −0.01 0.34 0.22 0.14 0.06 1.00
orientation
7 High-tech 0.17 0.38 −0.05 0.07 −0.04 −0.09 −0.10 0.16 1.00
8 Size 14.31 52.09 0.05 −0.01 −0.11 −0.04 0.03 −0.04 −0.05 1.00
9 Firm risk 0.22 0.13 −0.13 0.05 −0.13 −0.05 0.02 0.10 −0.01 0.10 1.00
10 R&D intensity 3.01 214.85 −0.05 0.00 0.00 0.01 0.00 0.00 −0.01 0.00 −0.01 1.00
11 Advertising intensity 0.01 0.05 −0.03 0.04 −0.05 −0.02 0.03 0.04 −0.04 0.01 0.04 0.00 1.00
12 Slack 0.37 0.29 −0.08 −0.01 −0.28 −0.20 −0.02 −0.04 0.30 −0.03 0.30 0.01 0.08 1.00
13 Capital intensity 11.89 453.20 −0.04 0.00 0.01 0.01 0.00 0.00 −0.01 −0.01 −0.02 0.93 0.00 0.01

ROA: return on assets; CSP: corporate social performance; R&D: research and development.
Year dummy variables excluded due to space limitations. N = 2906 firms; 14,150 firm-year observations.
aAbsolute correlations above 0.02 are significant at the 0.05 level.
Strategic Organization 00(0)
Table 2. GEE-modeled effects of CSP on industry-adjusted ROA.

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

Gras and Krause

β (SE) β (SE) β (SE) β (SE) β (SE) β (SE)

Size 0.03** (0.01) 0.03** (0.01) 0.03** (0.01) 0.03** (0.01) 0.02** (0.01) 0.03** (0.01)
Firm risk −40.45** (1.82) −40.57** (1.82) −40.45** (1.82) −40.48** (1.82) −40.54** (1.82) −40.50** (1.82)
R&D intensity −0.00* (0.00) −0.00* (0.00) −0.00* (0.00) −0.00* (0.00) −0.00* (0.00) −0.00* (0.00)
Advertising intensity −20.97** (3.77) −20.97** (3.77) −20.97** (3.77) −20.97** (3.77) −21.00** (3.77) −20.95** (3.77)
Slack 2.67* (1.12) 2.73* (1.12) 2.69* (1.12) 2.70* (1.12) 2.68* (1.12) 2.74* (1.12)
Capital intensity 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 0.00 (0.00) 0.00 (0.00)
Year −1.15 −1.04 −1.15 −1.15 −0.58 −1.05
Dynamism −0.05 (3.16) 0.23 (3.16) −0.41 (3.40) −0.04 (3.16) 0.15 (3.16) −0.14 (3.16)
Munificence −0.00 (0.00) −0.00 (0.00) −0.00 (0.00) −0.00 (0.00) −0.00 (0.00) −0.00 (0.00)
Complexity −1.21 (0.91) −1.23 (0.91) −1.21 (0.91) −0.76 (0.97) −1.12 (0.91) −1.20 (0.91)
Industry social 0.58 (0.41) 0.57 (0.41) 0.57 (0.41) 0.58 (0.41) 0.98* (0.44) 0.69 (0.41)
orientation
High–tech −3.33** (0.68) −3.33** (0.68) −3.32** (0.68) −3.31** (0.68) −3.35** (0.68) −3.13** (0.68)
CSP 0.43** (0.11) 0.67** (0.16) 0.47** (0.18) −0.14 (0.45) 0.65** (0.14) 0.28* (0.13)
CSP × munificence −0.00* (0.00)
CSP × dynamism −0.35 (1.22)
CSP × complexity 0.57 (0.44)
CSP × industry 0.32** (0.12)
social orientation
CSP × hi-tech 0.72** (0.27)
Wald χ2 603.13** 608.62** 603.21** 604.88** 610.15** 610.49**
∆ Wald χ2 5.59* 0.08 1.75 7.02** 7.36**

SE: standard errors; ROA: return on assets; CSP: corporate social performance; R&D: research and development; GEE: generalized estimating equation; N = 2906 firms.
**p < 0.01; *p < 0.05.
13
14 Strategic Organization 00(0)

Figure 1. Effect of interaction between CSP and munificence on ROA.

Figure 2. Effect of interaction between CSP and industry social orientation on ROA.

importance weights to each KLD dimension. While it has been two decades since the creation of
these weightings, they remain fairly popular in contemporary CSP work. That fact notwithstand-
ing, future work may consider revisiting weights in the current business landscape, as not all
factors are likely as relevant today, while others may have increased in salience. Nevertheless we
erred on the side of comparability with previous work and calculate CSP using Waddock and
Graves’ weighting scheme and dimensions, with one exception—they include questions on
Gras and Krause 15

Figure 3. Effect of interaction between CSP and high/low-tech on ROA.

relations with South Africa, which are now excluded from KLD; we omit this dimension. We then
reran all models with the weight-based CSP construct, and the results remained largely the same.
The direction of our coefficients remained the same, and all remained significant, except for the
munificence coefficient shifted above the 0.05 threshold.
We next tested our models based on ROA values that are not industry-adjusted. Adjusting for
industry-level performance is appropriate for our competitor-based theorizing, yet it is a less com-
mon operationalization in the extant literature. The primary reason for this robustness test is to
allow for direct comparisons between our results and a broader base of published works. The coef-
ficients for all interactions remained the same. The only substantial differences were increased
strength of significance (lower p values) for both the munificence interaction (β = –0.00, p < 0.001)
and the industry social orientation interaction (β = 0.51, p < 0.001).
Finally, our primary dependent variable albeit commonly used in the literature, is an account-
ing-based variable. We wished to explore our results with a market-based performance meas-
ure. This DV is drawn from Hillman and Keim’s (2001) study of CSP: market value added
(MVA). As explained by the authors, MVA “captures the relative success of firms in maximiz-
ing shareholder value through the efficient allocation and management of scarce resources”
(Hillman and Keim, 2001: 129) and is calculated as market value (equity market valuation of
the firm) minus capital (debt and equity invested in the company). Hillman and Keim (2001)
further argue that “MVA is unique in its ability to capture shareholder valued creation because
it captures both the valuation (the degree of wealth enrichment for the shareholders) and per-
formance (the overall quality of capital management)” (p. 129). In doing so, MVA offers a way
to capture both tangible and intangible aspects of firm value. We follow Hillman and Keim’s
operationalization by calculating the change in MVA from one year to the next (divided by 100
for presentation of coefficients at hundredths in the tables). The results remain stable with coef-
ficients retaining their valence and similar or stronger p values. Altogether, our results appear
to be fairly robust.
16 Strategic Organization 00(0)

Discussion
The present research demonstrates that the relationship between CSP and CFP is dependent on
certain environmental factors, including industry munificence, social orientation, and tech level. In
doing so, we advance understanding of salient contingencies when pursuing CSP for financial gain.
On a broader level, our results indicate that “should firms pursue CSP?” may not be as fruitful a
question as “under what conditions should firms pursue CSP?” We offer our findings as just a few
of many possible answers to this very broad question, and we hope that the model we have devel-
oped will serve to further illuminate the nature of the CSP–CFP relationship. With our results, we
contribute novel moderators to the study of instrumental stakeholder theory, which establishes a
theoretical framework for exploring the relationship between CSP (and/or stakeholder manage-
ment practices) and various firm performance goals, including finance performance (Donaldson
and Preston, 1995).
A central premise of this literature is that, all else equal, firms that engage in CSP will enjoy
greater success in firm performance measures, given the benefits they gain from pleasing stake-
holders. Yet, all else is rarely equal in practice, and we extend this literature by exploring the rami-
fications of variations in other factors—some clearly more important than others. We conclude that
CSP leads to success under certain conditions and not others; in essence taking early steps toward
a contingent instrumental stakeholder theory. Such a theory, if developed in full, would likely rest
on the notion that stakeholder expectations vary based on dimensions of the task environment;
some included here, and some yet to be determined. The result of which is that favor is not gained
with stakeholders under certain conditions (e.g. low technology industries), negating any potential
financial performance gains.
Notably, our results were mixed, with some moderators adhering to our proposed differentiation
logic, some not adhering well, and one in the opposite direction from what we predicted.
Interestingly, these findings indicate that a strategic balance lens (Deephouse, 1999) may provide
the foundation for building a more comprehensive understanding of competitive contingencies in
the CSP–CFP relationship. Strategic balance theory is the integration of two conflicting strategic
perspectives. The first is based on a family of theories, literatures, and arguments suggesting that it
is beneficial for firms to be different from their competitors. The primary rationale is that, the more
different a firm, the less competition they face (Baum and Singh, 1994). Firms that are strategically
similar to competitors compete for the same finite market resources and, consequently, have lower
performance and higher failure rates (Deephouse, 1999). Based on our results, firms in munificent
and high-tech environments are well suited to follow the logic in this differentiation perspective.
Specifically, when it is difficult to execute CSP, and presumably CSP is rarer, this is the time to
engage in CSP activities to differentiate the firm, and this differentiation is rewarded with higher
relative performance.
The second perspective is based on a family of theories, literatures, and arguments suggesting
that it is beneficial for firms to be similar to their competitors. The foundation of this perspective
is that different firms are seen as illegitimate in the eyes of stakeholders. Isomorphic pressures
further press firms to conform and penalize those that do not (Scott, 1995). Firms that strategically
conform are rewarded with legitimacy, which facilitates valuable resource acquisition (Pfeffer and
Salancik, 1978). Based on our results, firms within industries full of competitors high in CSP are
well suited to follow this logic and dispel with strategic differentiation. Specifically, if one’s com-
petitors are engaging in CSP activities, it is best to follow suit.
Altogether, not only are these perspectives conflicting, but so too are our results. It may also be
speculated that the two forces are continually working against each other, which could further
account for our non-findings around dynamism and complexity. The question now becomes how
Gras and Krause 17

to reconcile the conflicting perspectives. Via strategic balance theory (Deephouse, 1999), this is
commonly done through exploring whether or not there is a “goldilocks zone” between differentia-
tion and conformity. Perhaps a moderate amount of CSP is optimal under these varying competi-
tive conditions. Alternatively, perhaps moderate levels of each moderator are most conducive to
the pursuit of CSP. Altogether, strategic balance theory may account for some or all of our conflict-
ing findings.
Strategic balance aside, it is plausible that one or the other of the perspectives is most applica-
ble, depending on particular environmental factors. The problem then becomes how to categorize
or theorize as to which competitive contingencies fit most appropriately with each perspective, in
a systematic way. While such a task is most appropriate for future work, we offer one possible
explanation. Specifically, research has established that stakeholder’s knowledge and understanding
of CSP activities is an important determinant of CSP’s effect on CFP (Du et al., 2010). It is argu-
able that CSP activities are obscured within dynamic, complex, and socially oriented environments
(Aragón-Correa and Sharma, 2003). The former two may obscure activities due to stakeholder
information overload. That is, when information is continually changing and/or multifarious, it is
difficult for stakeholders to interpret the information, including that surrounding CSP activities.
Likewise, when many competitors are pursuing various CSP activities, it may be difficult to under-
stand and recall which firm in an industry is engaging in which activities, obscuring understanding
of a focal firm’s activities. Conversely, when investment in CSP is a grand gesture in a resource-
scarce environment, or when an industry garners high public awareness, as is the case with high-
tech ones (Peress, 2008), awareness of activities may be easily spread and understood among
stakeholders. In summation, further exploration and theorizing is needed to advance our work to
concrete conclusions on the effects of specific competitive contingencies.

Implications for theory and practice

Beyond the aforementioned, our study makes additional contributions to both the theory and prac-
tice of CSP. First, we propose a competitive contingency model of the CSP–CFP relationship that
contextualizes the commonly studied theoretical link in a way not seen elsewhere in the literature.
To provide such contextualization, we not only draw on the time-tested concepts of munificence,
dynamism, and complexity but also incorporate industry social orientation and technology as per-
tinent facets of a firm’s competitive environment vis-à-vis CSP. We conceptualize CSP as a form
of competitive differentiation and posit that the financial benefits a firm accrues from such differ-
entiation depends on the firm’s competitive context. While our results do not match our expecta-
tions perfectly, we hope that this conceptualization of CSP outcomes will be useful in future work,
and in practitioner decision-making.
Second, we contribute to the CSP literature by empirically testing prior developed theoretical
predictions, specifically the predictions of Aragón-Correa and Sharma (2003) regarding the mod-
erating influence of munificence, dynamism, and complexity on the relationship between proactive
environmental strategy—a specific form of CSP—and competitive advantage. Our findings sup-
port their prediction of the negative moderating effect of munificence on the overall positive main
effect but provide little support for the moderating effect of complexity or dynamism.
Beyond testing established theoretical predictions, we also offer two novel competitive contin-
gency factors in the study of the CSP–CFP relationship: industry social orientation and whether or
not the industry is high tech. Regarding the former, much prior work has utilized the average CSP
of an industry as a control variable in testing CSP predictions (e.g. Chin et al., 2013), arguing that
industries vary in their social orientation and that this variance likely influences CFP. However, no
prior work of which we are aware has explored this construct as a contingency factor. Our findings
18 Strategic Organization 00(0)

suggest that industry social orientation is an important boundary condition in the CSP efficacy
question and that CSP is most beneficial within more socially oriented industries. Regarding the
latter, little CSP work involves differentiating higher and lower tech industries, yet our findings
suggest that it is one of the more influential factors in the efficacy of CSP.
Finally, we provide practical guidance to managers considering the use of socially responsible
practices to enhance financial performance. It could be argued that prior research on the CSP–CFP
relationship, while theoretically valuable, has produced limited actionable prescriptions for prac-
ticing managers (e.g. Orlitzky et al., 2003). Our study suggests that managers should take account
of their industry-based competitive surroundings and make CSP investment decisions based in part
on whether their competitive context invites a competitive advantage built on CSP.

Limitations
Our study contains several limitations which provide opportunities for future research. First, while
we test alternative specifications of the CSP variable, it is important to note that there exists a
plethora of other ways to capture CSP. Examples of other ways to capture CSP include Fortune
reputation ratings (e.g. Cottrill, 1990), charitable contributions (e.g. Galaskiewicz, 1997), compli-
ance with safety regulations (e.g. Marcus and Goodman, 1991), and customer service complaints
(e.g. Ogden and Watson, 1999). Future research may theorize and test the moderation effects we
have proposed on alternative measures of CSP.
Second, our study is focused on firms headquartered in North America. However, it is
entirely plausible that geographic and cultural differences can play a significant role in how
CSP impacts firms, just as we argue is the case with the more proximal industry level of analy-
sis. Conducting a similar study in more socially oriented contexts, or countries with weaker
formal institutions or economies, may yield different and interesting results. Third, our model
focuses on the moderation of an underlying linear relationship between CSP and CFP. Recent
work on the CSP–CFP relationship has, however, begun to explore curvilinear effects. In a
study of the relationship between a particular facet of CSP—corporate philanthropy—and CFP,
Wang et al. (2008) identified an inverse U-shaped relationship between the constructs.
Alternatively, Barnett and Salomon (2012) suggested the possibility of a U-shaped link between
CSP and CFP. Considerable ambiguity remains as to the exact shape of the relationship between
each type of CSP and each type of CFP, and little research has considered curvilinear relation-
ships with moderators. We see a deeper exposition into curvilinear relationships in our model
as an interesting topic of future study.
Finally, firms are not randomly assigned to industries; choosing one’s products, markets, com-
petitors, and so on is usually an intentional act. Moreover, it is possible that CSP is an input in
industry selection, introducing the possibility of endogeneity in our models. We attempted to limit
this concern, and mobility between industries is a costly endeavor which tends to be pursued based
on other factors (e.g. industry decline). Nevertheless, we hope that future work may circumnavi-
gate this possibility through alternative methods.

Directions for future research

Beyond those offered by our limitations, we see several fruitful avenues for future research. The
first is that we have offered evidence that industry characteristics, including munificence, social
orientation, and tech level, may influence the CSP–CFP relationship, which begs the question:
what other industry characteristics moderate this relationship? The following potential moderators
seem intriguing for the study of the CSP–CFP relationship. First, an understudied industry
Gras and Krause 19

characteristic, illiberality (also referred to as environmental stress), refers to the degree of threat
that managers face in the attainment of their goals from external competition, hostility, or indiffer-
ence (Child, 1972). We would expect, using similar logic to that in our hypotheses, that those firms
which engage in CSP within illiberal environments would differentiate themselves and reap finan-
cial rewards. Second, given that prior research has explored the interconnections of regulations and
the value of CSP (e.g. Carroll, 1991), as well as the inherent variability of regulations between
industries, we see the degree of regulation in an industry as an interesting moderator. We would
expect that CSP activities above and beyond abiding by regulations would be less common and
more differentiating in heavily regulated industries. Third, industries vary on reputation for several
reasons, including the degree to which organizations within them are good corporate citizens
(Winn et al., 2008). CSP in industries with poor reputations should produce greater financial returns
than in industries full of positively viewed competitors.
We also believe that more macro-level characteristics of the surrounding communities, states,
or countries may play an important role in the CSP–CFP relationship. Some such variables may
parallel those at the industry level. For instance, communities can vary substantially in their munif-
icence or dynamism, allowing for tests at a higher level of analysis. Yet, there are other interesting
environmental factors that may play a role. For example, the degree to which geographic areas in
which the firm operates are more liberal or conservative may play role in the value of CSP activi-
ties. As another example, the presence or absence of watch-dog groups, activists, and/or media in
an area may moderate the relationship, both allowing for publicity arising from CSP and lessening
the differentiation gained from CSP. Taken together, there is a wealth of interesting moderators that
may be brought to bear in the study of CSP and CFP.

Conclusion
Debate continues among scholars and practitioners as to the financial benefits of CSP activities.
Extant research offers more ambiguity than clear recommendations regarding the pursuit of CSP
activities, assuming CFP is the desired outcome. A clear reason for the ambiguity is that some firms
generate significant value from CSP, while others endure losses. Thus, we must ask what distin-
guishes firms that profit from CSP from those that do not. We offer a novel part of the answer to
this question by identifying the industry as a contingency factor. We hope this allows for more
informed pursuits of CSP and lays the foundation for more contingency work in the area.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publi-
cation of this article.

Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.

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24 Strategic Organization 00(0)

Author biographies
David Gras, PhD, is an assistant professor of strategy and entrepreneurship at the University of Tennessee. He
received his doctorate in entrepreneurship and emerging enterprises at Syracuse University. His research,
teaching, and practical experience reside at the intersection of strategic management, entrepreneurship, and
social value creation. In particular, he explores how and when the pursuit of social value creation impacts firm
performance. He has published in leading journals such as the Academy of Management Review, Journal of
Management, and Journal of Business Venturing.
Ryan Krause, PhD, is an associate professor of strategy and Schumacher Junior Faculty Fellow in the Neeley
School of Business at Texas Christian University. He received his doctorate in strategic management and
organization theory from Indiana University. He currently serves on the editorial review boards of Academy
of Management Journal, Strategic Management Journal, Organization Science, Journal of Management
Studies, and Organizational Research Methods. His research interests include boards of directors, executive
succession, and stakeholder management.