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Exploring the Impact of Legal Systems and Financial Structure on Corporate Responsibility

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Entrepreneurship, Governance and Ethics

Abstract

This study investigates how diverse European legal systems and financial structures influence corporate social and environmental responsibility. The argument is developed by means of a framework that integrates legal systems and financial structures. Hypotheses relating to environmental responsibility have been tested using Innovest data gathered between 2002 and 2007 from 645 companies in 16 countries; and hypotheses relating to social responsibility have been tested using Innovest data gathered between 2004 and 2007 from 600 companies. The findings demonstrate that legal systems influence corporate responsibility (CR) in both social and environmental spheres. They also support the claim that corporations are more likely to act in environmentally responsible ways when there are strong and well-enforced state regulations in place to ensure such behavior. Company size is shown to have a greater impact on CR than either excess cash or performance. Large companies tend to be more visible than small ones do, and society expects them to behave in a more socially and environmentally responsible manner regardless of their financial performance or available cash. Finally, these findings support the hypothesis that capital structure significantly influences CR: companies with a high number of publicly held shares and a low percentage of debt are more likely than others to commit themselves to social and environmental activities.

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Authors and Affiliations

  1. Fulbright Georges Lurcy UCLA Visiting Scholar, Anderson School of Management and School of Law, Los Angeles, CA, 90077, U.S.A.

    Céline Gainet

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  1. Céline Gainet
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Editors and Affiliations

  1. University of Birmingham, School of Business, Edgbaston Road, B15 2TY, Birmingham, United Kingdom

    Robert Cressy

  2. York University, Schulich School of Business, Keele Street, 4700, M3J 1P3, Toronto, Ontario, Canada

    Douglas Cumming

  3. University of Birmingham, Birmingham Business School, Edgbaston Park Rd., B15 2TT, Birmingham, United Kingdom

    Christine Mallin

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Gainet, C. (2012). Exploring the Impact of Legal Systems and Financial Structure on Corporate Responsibility. In: Cressy, R., Cumming, D., Mallin, C. (eds) Entrepreneurship, Governance and Ethics. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-2926-1_5

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