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The Moderating Effect of Cultural Values on the Relationship Between Corporate Social Performance and Firm Performance

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Abstract

Using two national culture dimensions, we show that the influence of firms’ corporate social performance (CSP) on corporate financial performance (CFP) hinges on culture. Specifically, CFP is higher in those firms where CSR initiatives are congruent with the cultural environment. CSP has a negative impact on CFP for those firms domiciled in countries which are individualistic and favor flexibility. These findings are amplified for those firms with low levels of foreign influence in terms of institutional ownership and sales. Using a dataset covering 5334 firms from 41 different countries, our results indicate that culture and CSR initiatives have a powerful interaction effect in determining CFP, suggesting that CSP’s impact is dependent upon the culture of the country where the firm resides.

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Notes

  1. Each of these scholars use broadly similar methods. Individual-level survey items are administered to samples from a wide range of nations, with the mean score for each item aggregated for each nation. Sample level means are then factor analyzed, yielding a set of dimensions summarizing culture-level variation in national means. Controls are used to guard against the effects of cultural differences in survey response style.

  2. Seven survey items were used to define their new measure of individualism/collectivism, which includes both self-descriptions and value statements. Means were found to correlate between 0.70 and 0.89 with earlier Hofstede measures.

  3. Seven survey items were used to define their new measure of monumentalism/flexibility.

  4. While Minkov et al.’s (2017b) cultural dimensions are relatively new, they have been cited in a wide range of prominent journals. As one example, Bukowski and Rudnicki (2019) find that Minkov’s two cultural dimensions do a better job than Hofstede’s five cultural dimensions in explaining national innovation success. As another example, Fischer et al. (2019) use Minkov’s FLX-MON construct and find that the relative strength of norm-intention and norm-behavior correlations are systematically higher in contexts in which individuals are more flexible. As a testament to the robustness of IDV-COLL and FLX-MON, Minkov et al. (2019) and Minkov et al. (2018a) generate the same two dimensions empirically using two different sets of questions from the 2015/2016 survey; the first set focuses on what people would do with their money if they were rich, while the second set focuses on the values and traits that parents teach to their children.

  5. The validity of the FLX-MON dimension is confirmed by its persistent association with measures of self-consistency and self-esteem from countries around the world, including differences in national educational achievement. Other national indicators, including homicide rates, adolescent fertility, suicide rates, and tobacco consumption seem to follow the same geographic distribution (Minkov 2018).

  6. Founded in 2003 in Switzerland, ASSET4 is a leading provider of objective, comparable and systematic information that offers professional investors and corporations with the world’s largest database of environmental, social, and governance (ESG) information. ASSET4 employs over 100 analysts to collect relevant, comparable and up-to-date information from publicly available data sources, including CSR annual reports, stock exchange filings, and news sources. Sample selection bias is reduced by using all firms listed on the ASX 300, Bovespa, CAC 40, DAX, FTSE 250, MSCI Emerging Markets, MSCI World, NASDAQ 100, S&P500, SMI, and STOXX 600 stock exchanges. This dataset has been used extensively by many researchers, including Cheng et al. (2014), Eccles et al. (2014), and Ioannou and Serafeim (2012).

  7. Following Shi et al. (in press), we obtain foreign and domestic institutional ownership data from FactSet. Per capita GDP and GDP growth rate data are obtained from World Bank. All other financial variables are obtained from World Scope.

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Acknowledgements

We are thankful for constructive comments and suggestions from participants at the Journal of Corporate Finance conference on Culture & Finance held at Wake Forest University, participants at the EAA conference held at the University of Strathclyde, Glasgow, participants at the AAA annual conference held at Chicago, Illinois, seminar participants at the University of Waterloo, and three anonymous reviewers. Veenstra gratefully acknowledges the financial support of McMaster University. All errors are our own.

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Authors and Affiliations

  1. Miami Herbert Business School, University of Miami, 1320 S Dixie Hwy, Coral Gables, FL, 33146, USA

    Wei Shi

  2. DeGroote School of Business, McMaster University, 1280 Main Street West, Hamilton, ON, L8S 4M4, Canada

    Kevin Veenstra

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  1. Wei Shi
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Appendix 1: Description of Asset4 Categories

Appendix 1: Description of Asset4 Categories

Category

Description

Environmental performance pillar

The environmental pillar measures a company's impact on living and non-living natural systems, including the air, land and water, as well as complete ecosystems. It reflects how well a company uses best management practices to avoid environmental risks and capitalize on environmental opportunities in order to generate long-term shareholder value

Emission reduction

The emission reduction category measures a company's management commitment and effectiveness toward reducing environmental emission in the production and operational processes. It reflects a company's capacity to reduce air emissions (greenhouse gases, F-gases, ozone-depleting substances, NOx and SOx, etc.), waste, hazardous waste, water discharges, spills or its impacts on biodiversity and to partner with environmental organizations to reduce the environmental impact of the company in the local or broader community

Product innovation

The product innovation category measures a company's management commitment and effectiveness toward supporting the research and development of eco-efficient products or services. It reflects a company's capacity to reduce the environmental costs and burdens for its customers, and thereby creating new market opportunities through new environmental technologies and processes or eco-designed, dematerialized products with extended durability

Resource reduction

The resource reduction category measures a company's management commitment and effectiveness toward achieving an efficient use of natural resources in the production process. It reflects a company's capacity to reduce the use of materials, energy or water, and to find more eco-efficient solutions by improving supply chain management

Social performance pillar

The social pillar measures a company's reputation and loyalty with its customers, employees and society at large. It is a reflection of the company's reputation and the health of its license to operate, which are key factors in determining its ability to generate long-term shareholder value

Customer/product responsibility

The customer/product responsibility category measures a company's management commitment and effectiveness toward creating value-added products and services upholding the customer's security. It reflects a company's capacity to maintain its license to operate by producing quality goods and services integrating the customer's health and safety, and preserving its integrity and privacy also through accurate product information and labeling

Society/community

The society/community category measures a company's management commitment and effectiveness toward maintaining the company's reputation within the general community (local, national and global). It reflects a company's capacity to maintain its license to operate by being a good citizen (donations of cash, goods or staff time, etc.), protecting public health (avoidance of industrial accidents, etc.) and respecting business ethics (avoiding bribery and corruption, etc.)

Society/human rights

The society/human rights category measures a company's management commitment and effectiveness toward respecting the fundamental human rights conventions. It reflects a company's capacity to maintain its license to operate by guaranteeing the freedom of association and excluding child, forced or compulsory labor

Workforce/diversity and opportunity

The workforce/diversity and opportunity category measures a company's management commitment and effectiveness toward maintaining diversity and equal opportunities in its workforce. It reflects a company's capacity to increase its workforce loyalty and productivity by promoting an effective life-work balance, a family friendly environment and equal opportunities regardless of gender, age, ethnicity, religion or sexual orientation

Category

Description

Workforce/employment quality

The workforce/employment quality category measures a company's management commitment and effectiveness toward providing high-quality employment benefits and job conditions. It reflects a company's capacity to increase its workforce loyalty and productivity by distributing rewarding and fair employment benefits, and by focusing on long-term employment growth and stability by promoting from within, avoiding lay-offs and maintaining relations with trade unions

Workforce/health & safety

The workforce/health & safety category measures a company's management commitment and effectiveness toward providing a healthy and safe workplace. It reflects a company's capacity to increase its workforce loyalty and productivity by integrating into its day-to-day operations a concern for the physical and mental health, well-being and stress level of all employees

Workforce/training and development

The workforce/training and development category measures a company's management commitment and effectiveness toward providing training and development (education) for its workforce. It reflects a company's capacity to increase its intellectual capital, workforce loyalty and productivity by developing the workforce's skills, competences, employability and careers in an entrepreneurial environment

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Shi, W., Veenstra, K. The Moderating Effect of Cultural Values on the Relationship Between Corporate Social Performance and Firm Performance. J Bus Ethics 174, 89–107 (2021). https://doi.org/10.1007/s10551-020-04555-9

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