Asian American Pacific Islander Month DDSD 2024.pptx
Being good while being bad social responsabilty
1. Journal of International Business Studies (2006) 37, 850–862
& 2006 Academy of International Business All rights reserved 0047-2506 $30.00
www.jibs.net
Being good while being bad: social
responsibility and the international
diversification of US firms
Vanessa M. Strike, Jijun Gao Abstract
and Pratima Bansal This paper contributes to the discussion on international diversification and
corporate social responsibility (CSR) by suggesting that firms can be
Richard Ivey School of Business, The University of simultaneously socially responsible and socially irresponsible. To test our
Western Ontario, London, Ontario, Canada assertions, we analyze data from 222 publicly traded US firms from 1993 to
2003. The findings support our hypotheses, and have significant implications
Correspondence: for the way in which we conceptualize CSR.
P Bansal, Richard Ivey School of Business, Journal of International Business Studies (2006) 37, 850–862.
The University of Western Ontario, Office/ doi:10.1057/palgrave.jibs.8400226
Building: 2N34, LNCPM, London, Ontario,
Canada N6A 3K7.
Tel: þ 1 519 663 0183; Keywords: corporate social responsibility; corporate social irresponsibility; multinational
corporations; international diversification; time series cross-sectional analysis
Fax: þ 1 519 661 3959;
E-mail: PBansal@ivey.uwo.ca
Introduction
The protests at the World Trade Organization meetings in Seattle
(1999), Quebec City (2001), Doha (2001), and Hong Kong (2005)
emphasized just how important social responsibility has become to
multinational organizations. The protests in Seattle were ‘the most
striking expression of citizens struggling against a worldwide
corporate-financed oligarchy – in effect, a plutocracy’ (Hawken,
2000). There is a vociferous community that believes multi-
nationals are socially irresponsible, yet the research evidence has
been mixed. Proponents argue that multinationals exploit the lax
social and environmental standards in foreign countries (Low and
Yeats, 1992; Lucas et al., 1992). Opponents argue that there is a
positive relationship between international diversification and
social responsibility, and that internationally diversified firms
transfer best practices across geographical boundaries, improving
social justice (Bansal and Roth, 2000; Christmann, 2004).
Unlike prior research, we do not polarize the argument. Instead,
we argue that firms can be socially responsible in some activi-
ties and irresponsible in others. To illustrate, we use the example
of Nike, a public US firm that employs 23,000 people in North
America, Europe, Asia Pacific, and Latin America (Nike, 2005). The
international human rights organization ‘Global’ Exchange has
reported that Nike employees in developing countries are forced to
Received: 22 August 2005
Revised: 28 February 2006
work excessive hours, are not paid enough to meet their most basic
Accepted: 10 April 2006 needs, and are subject to violent intimidation if they speak out
Online publication date: 7 September 2006 about labor abuses (Connor, 2001). At the same time, Nike claims
2. Social responsibility and the international diversification Vanessa M. Strike et al
851
to be committed to alleviating poverty by improv- operates and their importance to the firm’, where
ing the well being of disadvantaged adolescent girls markets refer to different geographic locations
in the developing world. The company has also that cross national borders (Hitt et al., 1997, 767).
donated US$1 million to relief organizations pro- Firms diversify internationally in order to exploit
viding aid to the victims of the December 2004 foreign market opportunities and imperfections,
tsunamis (Nike, 2005). and to exploit the benefits of internalization (Rug-
In our paper, we addresses the question, Is the man, 1979). According to internalization theory,
international diversification of large US firms related to firms can enhance organizational value by expand-
corporate social responsibility (CSR)? By applying the ing abroad and controlling foreign operations if
resource-based view (RBV), we argue that interna- the expected gains are greater than the costs of
tionally diversified firms both create value by acting operating foreign subsidiaries (Shahrokh, 2002).
responsibly and destroy it by acting irresponsibly. International diversification provides resource-
Prior research has usually treated a firm’s responsible based opportunities for firms to capture more of
actions as merely the flip side of its irresponsible the value they create through learning economies
ones: a firm is responsible, for example, if it allows across subsidiaries and geographies (Kogut, 1985;
employees to speak out about injustices, and is Fladmoe-Lindquist and Tallman, 1994). Value is
irresponsible if it silences them. However, this created if the good, service, or activity satisfies a
approach fails to recognize irresponsible actions for need or provides benefits that contributes posi-
which there are no responsible analogs. For exam- tively to the quality of life, knowledge, and safety of
ple, violence against employees is irresponsible, but firms’ stakeholders (Haksever et al., 2004). On the
the absence of violence is not necessarily responsi- other hand, firms destroy value by making irre-
ble; it should be the status quo. Prior research also sponsible choices that affect negatively an identifi-
fails to model outcomes where firms are responsible able social stakeholder’s welfare.
in some operations, such as employee relations, and In recent years, international business researchers
not in others, such as corporate governance. have paid closer attention to the role of multi-
The failure to disaggregate responsible actions from national enterprises (MNEs) in society. Many
their negative counterparts may partly explain the researchers have suggested that global and institu-
inconclusive findings in prior research between CSR tional pressures have pushed MNEs toward higher
and financial performance. For example, Margolis levels of CSR (Sharfman et al., 2004). Scholars
and Walsh (2003) reviewed 95 studies that tested have noted that MNEs have been motivated to
whether social responsibility was related to financial apply reasonable labor standards with respect
performance: 42% of them showed the relationship to pay, working hours, child labor, and union-
was either mixed, inconsistent, or non-existent. ization because of global standardization and in
We develop this paper as follows. First, we review order to protect their reputations (Caves, 1996).
the literature and debates on international diversi- Most of the prior research in this area has focused
fication and social responsibility. Second, we define on the natural environment, possibly because
social responsibility, decompose it into its respon- MNEs dominate pollution-intensive industries
sible and irresponsible parts, and review the results and because of the significant cost-related benefits
of past studies that have aggregated responsibility of offshore pollution havens (Rugman and
and irresponsibility. Third, we develop hypotheses Verbeke, 1998). Host-country government regula-
about the international diversification of large US tions, peer firms, and media attention have all been
firms, social responsibility, and irresponsibility, shown to be related to environmental responsibil-
using the RBV as the theoretical basis for our ity (Christmann and Taylor, 2001; Christmann,
arguments. We proceed to describe the data, 2004; Bansal, 2005).
analysis, and results of the study. Our study is Some scholars propose that MNEs are irrespon-
based on the analysis of time-series cross-sectional sible, and the arguments are usually grounded in
data from 222 companies from 1993 to 2003. Lastly, the MNE’s search for lower costs (Mani and Wheel-
we discuss potential limitations, future research, er, 1998). They source labor below the subsistence
and implications. level and install cheap equipment that cannot
meet high environmental standards. Critics of this
International diversification hypothesis, however, point out that it has little
We define international diversification as the statistical support (Rugman and Verbeke, 1998),
‘number of different markets in which a firm even though there is substantial anecdotal evidence
Journal of International Business Studies
3. Social responsibility and the international diversification Vanessa M. Strike et al
852
(Sharfman et al., 2004) and considerable public later in the methodology section), Union Pacific
attention. Many members of government, environ- performed well in 2003 in the Diversity dimension
mental groups, human rights groups, and the (rated 2), but poorly in the Corporate Governance
general public are convinced that MNEs have a and Community dimensions (both rated –1).
negative social impact (Letchumanan and Kodama, These scores add to zero, yet there is no question
2000). The arguments for MNEs not acting respon- that the firm has undertaken responsible and
sibly, though, extend beyond costs. We describe irresponsible actions.
these arguments below. This dampening of the aggregated CSR construct
has likely influenced prior findings. Griffin and
Corporate social (ir)responsibility Mahon (1997) conducted an in-depth review of 25
In this paper, we use Bateman and Snell’s (2002) years of research on corporate social performance
definition of CSR to ground our own: CSR is the and financial performance and found no clear
set of corporate actions that positively affects an empirical relationship. Authors who have aggre-
identifiable social stakeholder’s interests and does gated the CSR and CSiR dimensions in the KLD
not violate the legitimate claims of another identi- database have suggested that it does not track CSR
fiable social stakeholder (in the long run). In turn, strengths and weaknesses equally well, so that some
we define corporate social irresponsibility (CSiR) items may dominate others (Hillman and Keim,
as the set of corporate actions that negatively 2001). In the next section, we theoretically
affects an identifiable social stakeholder’s legiti- develop the relationship between CSR and CSiR
mate claims (in the long run). by applying the RBV.
CSR and CSiR are characteristics of an organiza-
tion that can vary in degree. The greater a firm’s The resources and capabilities of social
cumulative positive actions, the more responsible (ir)responsibility
it is, and, similarly, the greater a firm’s negative
actions, the more irresponsible it is. In the context Corporate social responsibility
of MNEs, we assume that the cumulative actions of The RBV assumes that resources and capabilities
subsidiaries influence the CSR or CSiR of the provide firms with a competitive advantage that
parent corporation. If a subsidiary acts irresponsi- allows them to pursue opportunities or avoid
bly, it reflects on the MNE’s irresponsibility. threats (Barney, 1991). To secure a competitive
We subscribe to Bartlett and Ghoshal’s (1989) view advantage, the resources and capabilities must be
of an MNE as a network of sometimes loosely valuable, rare, and not easily imitated or substi-
connected organizations in different geographic tuted relative to competitors.
locations. As well, we also recognize that MNEs are According to the RBV, reputation is an intangible
involved in a bundle of activities. Consequently, it resource leading to a sustained competitive advan-
is possible for one subsidiary of an organization to tage (Barney, 1991; Deephouse, 2000). Corporate
engage in a responsible activity, while another may reputation is linked directly to social responsibility
act irresponsibly. MNEs, therefore, may be simulta- (Fombrun, 1996). Larger firms are more visible and
neously socially responsible and irresponsible. For subject to more media scrutiny, especially as they
the purposes of this study, MNE actions are judged diversify internationally. As a result, they are often
by stakeholders in the home country. Acceptable the target of incipient stakeholder attention, inten-
standards for many workplace issues (e.g., diversity, sifying their interest in protecting their reputation
labor conditions) will vary across host countries, (Fombrun, 1996). Appearing socially responsible
but an MNE is (ir)responsible by its home-country helps to deflect some of that attention.
standards. US MNEs may develop a competitive advantage
Prior research has found significantly inconsis- by building strong, socially responsible reputations
tent results between CSR and CSiR, suggesting according to US standards. The key to ensuring
they are subject to different dynamics (McGuire that subsidiaries adhere to US home standards is
et al., 2003). When CSR and CSiR are aggregated the MNE’s ability to learn to coordinate multiple
to predict financial performance, as has been the subsidiaries in foreign countries, which becomes
case in most studies (Waddock and Graves, 1997), increasingly challenging as firms diversify inter-
strengths can offset weaknesses, reducing variation nationally. Socially irresponsible MNEs can be
in the dependent variable. To illustrate, according perceived to be an ‘exploiting consortium’, a
to Kinder, Lydenberg, Domini (KLD) (described label that can damage their reputation, making it
Journal of International Business Studies
4. Social responsibility and the international diversification Vanessa M. Strike et al
853
difficult to secure a social and legal license to home-country CSR standards in the local environ-
operate (Luo, 2001). ment. For these reasons we predict:
The organizational learning literature maintains
that MNEs’ knowledge base and learning ability are Hypothesis 1: CSR is positively related to a firm’s
among the most critical resources and capabilities level of international diversification.
for achieving a sustainable competitive advantage
(Gupta and Govindarajan, 2000). Internationally Corporate social irresponsibility
diversified firms have a greater opportunity to learn While CSiR is also affected by reputation and
because they are exposed to new and different ideas learning, firms act irresponsibly because it is
from diverse contexts (Kochhar and Hitt, 1995) and difficult to manage the increased complexity
various social, cultural, and environmental chal- that comes with international diversification. As
lenges. Responding to these challenges requires the firms expand globally, the volume and diversity
firm to develop knowledge about international of information they must process increase (e.g.,
markets and their idiosyncrasies (Hitt et al., 1997). signals between foreign affiliates) (Boyacigiller,
Firms also have to be able to: 1990). One of the greatest challenges confronting
internationally diversified firms is coordinating,
(1) communicate effectively with different commu-
integrating, and exchanging resources among
nities about their expectations;
geographically dispersed subsidiaries (Kostova and
(2) manage the complexity of regulations in
Roth, 2003). International diversification escalates
different countries;
the coordination costs of balancing the numerous
(3) negotiate with governments to influence reg-
demands of different cultural and national differ-
ulations; and
ences, and imposes management challenges that
(4) innovate to meet home-country CSR standards
strain the firms’ stock of resources and capabilities
that the host country may not consider to be
(Geringer et al., 1989; Kostova and Zaheer, 1999).
important because of differing norms, values,
Internationally diversified firms need to coordi-
and stages of economic development.
nate geographic regions in order to exploit
These proprietary capabilities equip internationally potential economies of scope in their internal
diversified firms to take actions that are deemed to resources (Hitt et al., 1997). As the MNE grows,
be responsible by home-country standards, such as each new subsidiary must be monitored and
respecting the land, culture, and human rights of controlled individually; also, it becomes a member
indigenous people in the host country and mini- of a larger network of subsidiaries. The number of
mizing the firm’s environmental impact. ties increases not by just one, but by the number
Relationships with host-country stakeholders of ties that already exist in the MNE network. The
give foreign firms more opportunity to learn about network must accommodate more information,
unstated cultural norms, beliefs, and values, and more controls, more rewards, and retributions.
about how to communicate and negotiate so they There are also more opportunities for the system
can operate to home standards within the host to fail: poor managerial capabilities, cognitive
environment. MNEs are also strongly motivated limits, and constrained information systems are
to build healthy government relationships, because endemic in open systems such as MNE networks.
success in the host country often depends on MNEs may act irresponsibly, not out of malice or
government-sanctioned access to markets and ill will, but because they have to stretch their
infrastructure (Luo, 2001). The value created by resources and capabilities in order to coordinate
key resources, such as those described above, and monitor subsidiaries. Subsidiaries in countries
cannot be easily duplicated (Hillman and Keim, with relatively low environmental or social justice
2001). They are idiosyncratic to the firm and they standards may be inclined to compromise on these
take time to develop; they are tacit, socially standards because of financial pressures. For exam-
complex, and difficult to imitate. As international ple, Wal-Mart tried to implement fair labor prac-
diversification increases, we expect firms will tices in its foreign operations, but its subsidiaries in
increase both the size of their network and their China continued to mistreat factory workers
ability to communicate, negotiate, and build because the parent MNE had not invested enough
relationships in international contexts. Through resources and capabilities in managing the sub-
these experiences, firms learn how to learn, devel- sidiaries’ activities (Roberts and Bernstein, 2000).
oping greater sensitivity about how to operate to Even though MNEs try to resource their subsidiaries
Journal of International Business Studies
5. Social responsibility and the international diversification Vanessa M. Strike et al
854
appropriately, it is difficult to monitor and control sources, including company survey, expert panel
them because of the physical and cultural dis- assessment, and public disclosures. The ratings
tances. Subsidiaries may not always fully under- reflect each firm’s worldwide social and environ-
stand the social standards to which they must mental performance, but because of the greater
subscribe, or may choose to compromise those availability of US data, there are more data available
standards because they know that monitoring on local operations. Prior to 2001 KLD rated the
systems are not always adequate. Consequently, international operations under the heading ‘non-
irresponsible subsidiary actions can go unchecked. US operations’. Since then, they have renamed
For these reasons we predict: that heading ‘human rights’ and included non-US
and non-human rights ratings in the other
Hypothesis 2: CSiR is positively related to a firm’s categories: for example, non-US charitable giving
level of international diversification. initiatives were included in the community
category after 2001.
Methods We extracted geographic sales data from the
Compustat Industrial Annual file in the Compustat
Sample North America database. We collected financial
The original sample was drawn from the KLD and information and sales by geographical segment
Co. Index. Since 1991, KLD has evaluated the social from the Segments file of the same database. We
performance of approximately 650 publicly listed used the Lexis-Nexis Directory of Corporate Affilia-
firms based in the US. We identified 287 firms tions (which lists all corporate affiliations for US
for which there were KLD data over the research public firms) to establish the number of countries
period (1993 and 2003); 1993 was the first year in in which each firm had subsidiaries and its number
which international diversification data were avail- of foreign affiliates.
able and 2003 was the last year in which social
responsibility data were available when this study
Dependent variables
was initiated. Two of these firms were dropped
because they were not included in Compustat. We CSR and CSiR
dropped an additional 49 firms because of unclear KLD evaluates each firm along 13 different cate-
geographic segment names within the Compustat gories of CSR strengths or concerns (weaknesses).
database. For example, we could not accurately Within each of these categories are items to which
classify segments generically labeled ‘North Amer- KLD assigns a ‘1’ or ‘0’ according to whether or
ica, Domestic’, or ‘US, Mexico’ into the ‘domestic’ not a firm meets certain criteria. Seven of these
category of our international diversification mea- categories are ‘qualitative’ and consist of both
sure. Another 14 firms were discarded because there strengths and concerns; six are ‘exclusionary’ and
was more than 1 year of missing geographic data. comprised only concerns. We used only the
The final sample consisted of 222 firms, resulting seven qualitative categories to operationalize the
in 2442 observations over the research period. T-tests two dependent variables, because the six exclu-
confirmed that there were no systematic differences sionary screens are heavily industry-biased and not
between the sampled firms and those excluded from central core social issues. This approach makes the
the sampling process across key variables. The measures of CSR and CSiR more consistent; had
average firm size in 2003 was US$27 billion in total we included the exclusionary categories there
assets. The largest firm was American International would have been six CSiR categories with no CSR
Group (US$678.3 billion) and the smallest was Isco equivalents. Our approach has been used in prior
Inc. (US$54.4 million). The sampled firms operated KLD studies (Griffin and Mahon, 1997; Hillman
in up to 59 foreign countries, on average in nine. The and Keim, 2001). We also excluded seven items
Ford Motor Co. had the highest international sales from the analysis because they were added by KLD
(US$60.7 billion); on average across all years, inter- in 2002 or 2003 and had too few observations for a
national sales were US$3.7 billion. longitudinal analysis. The KLD measures are avail-
able from the authors upon request.
Data sources The values of strengths were summed to represent
The social responsibility data were drawn from CSR, and the values of concerns were summed to
the KLD database. The KLD evaluation of social represent CSiR. The higher the value of each of
performance is based on a wide range of data these variables, the greater was the firm’s CSR and
Journal of International Business Studies
6. Social responsibility and the international diversification Vanessa M. Strike et al
855
CSiR. Skewness and kurtosis were checked and diaries held by the firm (NFSU). We measured
found to be acceptable. Similar aggregate measures international dispersion as the total number of
of social responsibility have been used in previous foreign countries in which the firm had sub-
studies (Waddock and Graves, 1997), and their sidiaries (NFCO) (Allen and Pantzalis, 1996; Eden
validity has been tested and proved (Sharfman, et al., 2002).
1996). The KLD data are acknowledged as the The final measure of international diversification
best available, despite their limitations (Waddock, was the factor score obtained from a principle
2003). In addition, CSR is a theory-based formative components factor analysis of FSTS, NFSU, and
construct, so the issues of construct validity NFCO (Eden et al., 2002). All three indicators were
and reliability that typically apply in a reflective standardized before entering factor analysis, and a
construct are not as relevant. Bagozzi (1994, 333) unique factor emerged (eigenvalue¼2.29). The
argues that ‘reliability in the internal consistency Cronbach’s alpha for the three variables was 0.84,
sense and construct validity in terms of convergent suggesting a high level of reliability. The skewness
validity and discriminant validity are not mean- and kurtosis of this index measure were checked
ingful when indexes are formed as a linear sum of and found acceptable. Its standardized values were
measurements.’ We standardized both variables used in subsequent analysis.
before entering them into the analysis.
Diamantopoulos and Winklhoffer (2001) list four Control variables
critical issues that need to be addressed for valid As McWilliams and Siegel (2000) argued, research
formative index construction: content specifica- and development (R&D) intensity and advertising
tion, indicator specification, indicator collinearity, intensity may influence CSR, so we included both
and external validity. We address the first two by as control variables. R&D intensity was measured as
explicitly defining CSR/CSiR and use commonly R&D expense/total sales, and advertising intensity
employed component indicators (Agle et al., 1999). was measured as advertising expense/total sales.
The indicator collinearity condition is met because However, many values for these terms were miss-
there was weak correlation among the indicators ing, so we followed the lead of prior researchers
and small variation inflation factors when regres- (Russo and Fouts, 1997) and used industry averages
sing CSR/CSiR on their component parts. Lastly, as a proxy. We applied a square root transformation
other studies have used similar measures of CSR to and log transformation to the R&D intensity and
predict other outcomes, which is evidence that the advertising intensity measures, respectively, owing
construct is externally valid (Griffin and Mahon, to high skewness and kurtosis. In addition, we
1997; Hillman and Keim, 2001). Finally, our CSR/ included asset age as a control because Cochran and
CSiR measures were highly consistent over time Wood (1984) showed that asset age, measured as a
and thus likely reliable. ratio of the net and gross plant, property, and
equipment, was statistically related to CSR. We took
Independent variables the negative of this variable, where higher values of
asset age denote older assets, which is more
International diversification intuitive then the Cochran and Wood measure.
The measure of international diversification Firms with risky operations have been found to act
included both an international depth component, responsibly in order to proactively reduce risk
which is the weight of foreign markets in the global (Orlitzky and Benjamin, 2001). To control for firm
market of that firm, and an international breadth risk, we used the coefficient of variation of the daily
component, which is the dispersion of a firm’s stock prices for each firm in each year (standard
international activities across multiple markets. deviation/mean). We applied a log transformation
Acknowledging the separate influences of breadth to address skewness and kurtosis.
and depth is consistent with recent trends in the Firm size has been shown to affect CSR ratings in
international diversification literature (Johanson prior studies (Johnson and Greening, 1999), and
and Vahlne, 1977; Hitt et al., 1997). We followed we included firm size as a control, measured as the
Eden et al. (2002) to measure depth from two natural log of total assets. Prior research has
aspects: foreign market penetration, as measured also found that previous financial performance posi-
by the firm’s sales outside the US as a percentage of tively affects firms’ subsequent social performance
its total sales (FSTS); and foreign market presence, (Waddock and Graves, 1997), so we controlled for
as measured by the number of foreign subsi- previous financial performance, represented by the
Journal of International Business Studies
7. Social responsibility and the international diversification Vanessa M. Strike et al
856
return on sales lagged 1 year. Slack resources can based on a series of the likelihood ratio test (Singer
affect the extent to which firms are willing and and Willett, 2003). We detected significant auto-
able to invest in socially responsible initiatives. We correlation within the panels, and thus tried
measured slack resources as the ratio of current two specification options: common autocorrela-
assets over current liabilities (Bansal, 2005). A log tion coefficients to all panels (corr(ar1)) and panel
transformation was applied to normalize the values specific autocorrelations (corr(psar1)). There was no
of this variable. All control variables were standar- significant improvement in log likelihood from the
dized so that the coefficients of all continuous increased complexity of shifting from corr(ar1) to
variables in the model are comparable. To control corr(psar1): thus we used corr(ar1) as the autocor-
for industry effects we used dummy variables. Using relation pattern.
the one-digit North American Industry Classifica-
tion System, we identified five major industry
Results
categories. Food and Other Services were assigned
Table 1 reports the means, standard deviations, and
to one industry, as they had few observations (55)
correlations for all variables, except industry dum-
and did not warrant separate industry dummies;
mies used in the study. We report the descriptive
the other four categories were Mining, Utilities
statistics of the mean collapsed data. To collapse the
and Construction; Trade and Transportation; Pro-
data, we took the mean and standard deviation of
fessional and Information Services; and Manufac-
each variable for each firm across the 11 years, and
turing (the reference group).
reported the statistics of those variables. As we
used standardized variables in the analysis, the
Data analysis correlation matrix was based on standardized
Time-series cross-sectional data analysis is able to values. Correlation matrixes for individual years
control for unobservable, firm-specific, and time- are available from the authors upon request. To test
invariant effects (Halaby, 2004). It is a significant for multicollinearity, we checked the correlation
improvement on most prior CSR research, which matrix and variance inflation factors (VIFs) of the
has relied heavily on a single year of data. regression models on both pooled data and indivi-
Exceptions include McWilliams and Siegel (2001) dual years of data. We found that all VIFs were
and Ruf et al. (2001). smaller than 3 (numbers higher than 10 indicate
To analyze the data, we applied the xtgls com- multicollinearity).
mand in the STATA package. General least-square Table 2 presents the results of the GLS regression
(GLS) analysis accommodates the presence of analyses testing the hypotheses. Autocorrelation
heteroskedasticity, autocorrelation within panels, was high, even though it was addressed in our
and cross-sectional correlation. In the analysis, we statistical analysis: the common coefficients as
specified the error structure across panels as calculated by the Durbin–Watson technique were
heteroskedastic with no cross-sectional correlation 0.7747 and 0.7189 for the models with CSR and
Table 1 Descriptive statistics and correlation matrix
Mean s.d. 1 2 3 4 5 6 7 8 9 10
CSR 2.65 2.16 1.00
CSiR 2.16 1.84 0.33*** 1.00
International diversification –0.001 0.96 0.38*** 0.39*** 1.00
R&D intensity 0.04 0.04 0.22* 0.07 0.40*** 1.00
Advertising intensity 0.03 0.02 0.13 0.03 0.31*** 0.40*** 1.00
Risk 0.13 0.05 0.10 –0.02 0.13 0.27** 0.02 1.00
Asset age –0.54 –0.09 0.05 0.06 0.25* 0.18 0.17 0.05 1.00
Size 8.54 1.50 0.46*** 0.61*** 0.32*** 0.07 –0.05 –0.11 0.11 1.00
Lag of return on sales 0.10 0.07 0.08 –0.05 0.11 0.38*** 0.15 –0.12 0.24** 0.03 1.00
Slack resources 1.71 0.95 –0.17 –0.20 0.03 0.33*** 0.13 0.38*** –0.13 –0.43*** 0.14 1.00
Mean and s.d. were obtained from original variable values, and the correlation coefficients were based on standardized variables.
*Po0.05.
**Po0.01.
***Po0.001.
Journal of International Business Studies
8. Social responsibility and the international diversification Vanessa M. Strike et al
857
CSiR as dependent variables, respectively. This mance is not significantly related to CSR, it does
indicates that there was a high degree of consis- negatively affect the level of CSiR, consistent with
tency in the firm’s CSR and CSiR over time, the findings of Waddock and Graves (1997). Lastly,
providing some confidence in the reliability of the the coefficient for slack resources is positive and
repeated measures of the dependent variables marginally significant (Po0.10) with CSR.
(Campbell and Stanley, 1963). Model 1 shows the In the CSR model, only the coefficient for the
relationship between the level of international industry dummy variable for Food and Other
diversification and CSR. There is a statistically Services is significant with a positive coefficient
significant, positive linear relationship between (Po0.05). The coefficients for the other three
international diversification and CSR, supporting industries are not significant. In the CSiR model,
Hypothesis 1. The same relationship is also the coefficient for the dummy variable for the
observed in Model 2, where CSiR is the dependent Professional and Information Services industries
variable, supporting Hypothesis 2. variable is significant (Po0.001); the coefficient for
We controlled for R&D intensity, advertising the Mining, Utilities, and Construction industry
intensity, asset age, firm risk, firm size, previous variable is marginally significant (P¼0.098).
financial performance, organizational slack, and The coefficients for the Trade and Transporta-
industry in both models. The results show that tion, and Food and Other Services variables are
R&D intensity is related to CSR, but does not affect not significant.
firms in the CSiR model. There is no significant We also tested the robustness of the results. First,
relationship between advertising intensity and we included a lagged dependent variable as a
either CSR or CSiR. Asset age is significantly and control variable in the models. Our final model
positively associated with both CSR and CSiR. The remained intact, except that the autocorrelation
effect of firm risk is not significant in either model. coefficients were much lower than reported in
Larger firms show a higher level of both CSR and Table 2. Some researchers use a lagged dependent
CSiR, confirming the importance of size in social variable as a control variable when autocorrelation
issues research. Although prior financial perfor- is present within the dependent variable; however,
Table 2 GLS analysis results of model testing
Independent variables Dependent variables
Model 1: CSR Model 2: CSiR
International diversification 0.079*** (0.024) 0.059** (0.022)
R&D intensity 0.074** (0.024) 0.029 (0.022)
Advertising intensity 0.022 (0.016) 0.008 (0.013)
Risk –0.006 (0.007) 0.0001 (0.007)
Asset age 0.052** (0.020) 0.14*** (0.019)
Size 0.35*** (0.034) 0.50*** (0.028)
One year lag of return on sales 0.011 (0.009) –0.031** (0.01)
Slack resources 0.028w (0.016) –0.006 (0.014)
Industry 1: Mining, Utilities, and Construction 0.046 (0.099) 0.16w (0.097)
Industry 2: Trade and Transportation 0.11 (0.088) –0.081 (0.087)
Industry 3: Professional and Information Services –0.038 (0.082) –0.29*** (0.053)
Industry 4: Food and Other Services 0.40** (0.15) 0.014 (0.11)
Intercept –0.23*** (0.035) –0.086* (0.036)
Observations (N) 1799 1799
AR(1) coefficient r (common autocorrelation coefficient to all panels) 0.7747 0.7189
Log likelihood –586.22 –787.41
Wald w2 177.27*** (d.f.: 12) 584.68*** (d.f.: 12)
The number of estimated covariances (number of firm panels) is 169 for both models.
Standard errors are in parentheses.
w
Po0.1.
*Po0.05.
**Po0.01.
***Po0.001.
Journal of International Business Studies
9. Social responsibility and the international diversification Vanessa M. Strike et al
858
others have shown that using a lagged dependent to argue for this relationship, the obsolescing
variable may suppress the explanatory power of bargaining theory can also explain this relation-
theoretical variables (Achen, 2000). We do not ship. This theory predicts that, over time, national
think that it is necessary to use a lagged dependent governments will become more effective at
variable in a longitudinal study using the GLS striking bargains, thereby diminishing the bargain-
technique because autocorrelation is automatically ing power of MNEs. As such, firms have the greatest
addressed. However, for the sake of thoroughness, power when they first enter a country, yet,
we included it in our tests. over time, local competitors emerge and sunk costs
Second, it could be argued that international make it difficult for MNEs to pull out easily
diversification should be lagged 1 year behind CSR/ (Vachani, 1995). Host-country governments may
CSiR. We tested this, and the lagged international then pressure MNEs to act increasingly responsibly
diversification was not significant with CSR, but over time. As we did not investigate time-related
there was a marginally significant relationship with effects, we could not test this argument.
CSiR (P¼0.057). It seems that this effect extends to In the second hypothesis, we maintained that
yet another year for CSiR, but not for CSR. there continues to be a reputation and learning
Third, we ran the analysis without replacing the effect, but that the increasing complexity of
missing values of R&D intensity and advertising international diversification leads to increasing
intensity with industry average. The results did not irresponsibility. This relationship may also be
change, but the significance level of the coefficient explained by the often-heard pollution haven
of international diversification became marginal for hypothesis. This argument suggests that MNEs
CSiR (P¼0.051). Though causality was not hypothe- diversify into poorly regulated countries in order
sized, we also tested for reverse causality. Interna- to capitalize on the lower costs associated with
tional diversification was significantly and positively cheap labor, substandard working conditions,
related with CSR; CSiR was not significant. and weak environmental regulations (Walter,
Lastly, we tried a number of other common 1982). There have been few empirical tests of this
measures for firm size, such as number of employ- hypothesis, and the evidence for it is weak (Eske-
ees and log of sales, in addition to the one that we land and Harrison, 1997). Our results here also
finally employed, log of total assets. No differences cannot offer definitive insights because our regres-
were found. These sensitivity tests suggested that sion analysis does not illuminate the direction of
the results were robust to alternative methodo- causality. However, it is worth noting that the
logical treatments. pollution haven hypothesis would not have pre-
dicted a positive linear relationship between inter-
Discussion national diversification and CSR.
In this study, we investigated the relationship Overall, these findings have important implica-
between international diversification and social tions. First, we found that CSR and CSiR move in
responsibility. We argued that the construct of the same direction as international diversification:
social responsibility is coarse and should be decom- therefore, there is strong support for decomposing
posed into its negative and positive aspects. Firms, social responsibility into its positive and negative
we argued, can simultaneously act responsibly components. Prior research often combines them,
and irresponsibly. We teased apart, theoretically, which means that one offsets the other because
the differences between CSR and CSiR. Applying CSiR is represented as negative values and CSR as
the RBV, we hypothesized that international diver- positive values.
sification is positively related with CSR and Also, CSiR is often conceptualized as merely the
with CSiR. Firms that diversify internationally both reverse of CSR. For example, a firm is socially
create value by acting responsibly and destroy value responsible if it has a diverse board of directors and
by acting irresponsibly. Both of our hypotheses irresponsible if it does not. This issue is important
were supported. both to researchers and to practitioners. We suggest
In the first hypothesis, we argued that MNEs that the two are not merely opposite reflections
recognize the competitive advantage secured by of each other, but they are separate yet related
the reputation and learning acquired through constructs.
social responsibility: hence, there is a positive Our study shows that researchers need to pay
relationship between international diversification careful attention to the specific components of
and social responsibility. While we used the RBV CSR. We have shown that failing to decompose CSR
Journal of International Business Studies
10. Social responsibility and the international diversification Vanessa M. Strike et al
859
into its positive and negative components may capabilities such as research and development also
have led to non-significant and possibly even invest in CSR. Neither R&D intensity nor advertis-
spurious results in prior studies. Other studies ing intensity was significantly related to CSiR. Asset
have recognized that CSR can be decomposed age was positively related to both CSR and CSiR.
into people and product components (Johnson New technologies allow MNEs to incorporate a
and Greening, 1999) and stakeholder management higher level of environmental responsibility that is
and issues components (Hillman and Keim, 2001). embedded in the technology into their production
These components may have different outcomes. processes, leading to higher CSR. However, newer
Our findings take this one step further by under- technologies also involve higher risks because of
scoring the coarseness of the CSR construct and learning costs, leading to higher CSiR.
encouraging researchers to be more thoughtful in The only significant industry coefficient for CSR
their conceptualization of this construct. was Food and Other Services; its positive value
For practitioners, this study shows that discussions suggests that this industry is more socially respon-
about international diversification and CSR must be sible than the benchmarked Manufacturing
approached cautiously. Clearly, international diver- industry. In respect to CSiR, the Professional and
sification can create positive social spin-offs, and Information Services industry is found to be less
these should be encouraged. However, practitioners irresponsible than the benchmarked Manufactur-
must also recognize that there are a commensurate ing industry, and Mining, Utilities, and Construc-
set of challenges associated with controlling and tion is more so.
preventing irresponsibility. Our research also sug- To complement our findings, further research
gests that it is misleading to simply say that might examine the impact of the MNE strategy on
international diversification is either good or bad. the relationship between international diversifica-
With increasing diversification, firms become more tion and CSR. For instance, we did not include
socially responsible and more socially irresponsible. measures of global and multi-domestic strategy
This study, then, raises additional questions, and in the analysis, primarily because good archival
avenues for future research, such as: can the shift measures were not available. Control mechanisms
towards irresponsibility be better managed? will likely influence CSR/CSiR within the MNE
In addition to the hypothesized relationships, network. Future researchers are encouraged to
many of the controls used in this study emerged investigate this issue using different methodolo-
as significant. The significant positive importance gies, such as surveys, to test these relationships.
of firm size for CSR supports arguments that large In our study, we recognize that CSR and CSiR
firms are more visible and, therefore, more scruti- interact; the arguments of corporate reputation,
nized and concerned about their reputation. Our learning, and complexity spill over to both CSR
study focused on large US publicly traded firms; and CSiR. In this paper, we have focused on
future studies could also focus on smaller, entre- the core arguments most relevant to CSR and CSiR.
preneurial, and owner-operated firms. This avenue We encourage future researchers to explore the
for future research is particularly important because interactions between CSR and CSiR, possible non-
international entrepreneurship is a subject of linear effects, and other mediating variables.
increasing interest and attention (McDougall and It is also important to acknowledge the US-centric
Oviatt, 2000). Firm size was also positively related nature of the arguments and data analysis. Normal-
to CSiR. Large firms may find it more difficult izing the analysis to the US meant that we lost some
to manage their social relationships because of the of the richness in different national approaches to
complexity that comes with their size. Or, it could social and environmental issues, and imposed US
be that large firms are more scrutinized than standards on MNE performance. However, foreign
small firms and we simply know more about their markets comprise a rich diversity of economic
irresponsible actions. Closely related to scrutiny, stages, political regimes, and norms, which would
larger firms may be more transparent about their lead to quite different host-country assessments
operations, so that they may score high on both of CSR and CSiR. Had the analysis been rooted in
CSR and CSiR. We could not control for transpar- a country with lower standards of CSR (or higher
ency, because of the availability of this data, but it is CSiR), we might have seen a decreasing relationship
worthy of future research. with international diversification and CSiR. We
R&D intensity was positively associated with encourage future researchers to extend this study to
CSR, suggesting that firms that invest in long-term other cultural contexts.
Journal of International Business Studies
11. Social responsibility and the international diversification Vanessa M. Strike et al
860
It is also important to recognize the limitations of national diversification and developed a measure
the KLD data in representing CSR (Sharfman, 1996). that incorporated both the depth and the disper-
The specific items do not load well on each of the sion of international diversification. Second, cor-
qualitative screens. Nevertheless, researchers have porate reputation and organizational learning may
conceded that this data source is one of the best explain the positive relationship between interna-
available for measuring CSR (Sharfman, 1996; Hill- tional diversification and CSR. Third, our findings
man and Keim, 2001). Until researchers in this area highlight the importance and impact of the com-
are able to agree on the theoretical construct of plexities of operating in a foreign environment.
CSR, a sound measurement of CSR and CSiR will The issue of the social responsibility of MNEs
continue to be elusive. We also leave this challenge has been a cornerstone for arguments opposing
to future research. neo-liberal trade philosophy. Proponents of this
philosophy argue that social welfare is facilitated
Conclusion through the economic gains generated by free
This research contributes to the discussion of social trade. Opponents suggest that international diver-
responsibility and internationalization by under- sification may compromise social justice and
scoring the point that CSiR needs separate and environmental integrity. Our study has offered
considered treatment, and that firms that are important insights into this discussion. Instead of
involved extensively in international diversifica- casting a vote on the side that is more right, we
tion are likely to be operating both responsibly and suggest that both sides have valid arguments, and
irresponsibly. These findings suggest that if we are the answers may lie in the underlying relationships.
to progress in our understanding of the relationship
between international diversification and social
responsibility, we must do so with a sharper vision Acknowledgements
of what we include in our core constructs and the We thank and acknowledge the contributions of Glenn
nature of the proposed relationships. ˆ
Rowe, Nien-he Hsieh and Kersi Antia, as well as the
In addition to this overall message, we should valuable insights of the anonymous reviewers, partici-
like to highlight other key contributions of this pants of the JIBS Focused Issue Workshop, and the JIBS
research. First, we revisited the construct of inter- Guest Editors.
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About the authors and business strategy. He primarily applies a long-
Vanessa M. Strike is a PhD candidate at the Richard itudinal design to empirical studies, and multi-
Ivey School of Business, University of Western disciplinary approaches to theory development.
Ontario. Her research interests are primarily in the
areas of social responsibility, entrepreneurship, and Pratima Bansal is an associate professor and the
family business. Shurniak Professor of International Business at
the Richard Ivey School of Business. She received
Jijun Gao is a PhD candidate at the Richard Ivey her doctorate from the University of Oxford.
School of Business, University of Western Ontario. Her research interests are primarily in the areas
His research interests include business and society, of sustainable development and international
international business, sustainable development, business.
Accepted by Lorraine Eden, Amy Hillman, Peter Rodrignez and Donald Siegel, Guest Editors, 4 October 2006. This paper has been with the author for two
revisions.
Journal of International Business Studies