corporate social responsibility: exploring the role of
TRANSCRIPT
CORPORATE SOCIAL RESPONSIBILITY: EXPLORING THE ROLE OF INSTITUTIONAL
ANTECEDENTS, CONSUMER REACTIONS AND ENTREPRENEURIAL SOCIAL
OPPORTUNITY SELECTION
By
DUSTIN BRADLEY SMITH
A dissertation submitted in partial fulfillment of
the requirements for the degree of
DOCTOR OF PHILOSOPHY
WASHINGTON STATE UNIVERSITY
College of Business
May 2013
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To the Faculty of Washington State University:
The members of the Committee appointed to examine the dissertation of DUSTIN
BRADLEY SMITH find it satisfactory and recommend that it be accepted.
_________________________________________
Jonathan Arthurs, Chair
_________________________________________
Arvin Sahaym, Ph.D.
_________________________________________
Kristine Kuhn, Ph.D.
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ACKNOWLEDGEMENT
I would like to acknowledge and express my sincere thanks for the hard work and
guidance provided by my committee members Jonathan Arthurs, Arvin Sahaym and Kristine
Kuhn.
I would also like to thank the faculty and staff of the College of Business, especially Dr.
Joireman, for their support.
Finally, with much gratitude I thank my colleagues and co-workers, Doug Miller, Tera
Galloway, and Kevin Chastagner.
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CORPORATE SOCIAL RESPONSIBILITY: EXPLORING THE ROLE OF INSTITUTIONAL
ANTECEDENTS, CONSUMER REACTIONS AND ENTREPRENEURIAL SOCIAL
OPPORTUNITY SELECTION
Abstract
by Dustin Bradley Smith, Ph.D.
Washington State University
May 2013
Chair: Jonathan Arthurs
This dissertation investigates Corporate Social Responsibility through three essays. Essay
one hypothesizes that in societies defined by greater public discretion, power and legitimacy is
transferred to the public, enhancing its role as a legitimate firm stakeholder and augmenting its
ability to pressure firms to conform to expectations of proper firm behavior. Additionally, this
paper hypothesizes that information technology increases the capacity of the public to generate
and change institutional norms, thereby leading to greater levels of firm social activity. The
hypotheses are tested using a sample of firms across 47 nations. Results support the notion that
public discretion, defined as participatory government, leads to an increase in firm-level CSR.
Additionally, information technology is shown to positively moderate this effect.
Essay two investigates how CSR can buffer firms against negative outcomes following an
adverse event (e.g., a service failure) through two studies. Study 1 shows that consumers are less
likely to spread negative word of mouth following a product failure when a firm engages in
environmental CSR, but only when consumers are also high in trait environmental concern
(TEC) and that this effect is mediated by consumer anger. Study 2 and demonstrates that
perceived value overlap reduces consumer anger which in turn reduces NWOM within a service
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failure context. Perceived value overlap is greater among consumers when a firm distributes
charitable donations to causes selected by the consumers. The findings show that, following
service failures, a flexible CSR policy which donates to charities based on consumer choice may
encourage feelings of value-alignment.
Essay three concerns the evaluation and selection of opportunities by socially oriented
entrepreneurs. Utilizing a conjoint methodology this paper finds three attributes of social
opportunities which significantly influence potential opportunity ratings; namely, proximity,
pervasiveness, and impact. A significant interaction between financial returns and pervasiveness
but not proximity and impact suggests SEs are conscious of economic concerns and will select
opportunities that satisfy both conditions but only in certain instances. The paper concludes that
the relationship between social and financial value creation is more complex than previously
thought.
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TABLE OF CONTENTS
Page
ACKNOWLEDGEMENTS……………………………………………………………...iii
ABSTRACT……………………………………………………………………………...iv
LIST OF TABLES………………………………………………………………….........vii
LIST OF FIGURES……………………………………………………………………..viii
CHAPTER
1. PAPER ONE…………………………………………………………………..1
“Corporate Social Performance in a Digital, Free Society”
2. PAPER TWO………………………………………………………………...42
“Corporate Social Responsibility Initiatives Reduce Negative
Reactions to Service Failures Among Value-Aligned Customers”
3. PAPER THREE……………………………………………………………..84
“The Best of Both Worlds: The role of financial returns
in social opportunity selection”
APPENDIX
A. SERVICE FAILURE SCENARIOS USED IN PAPER 2, STUDY 1…….122
B. SCALES USED IN PAPER 2, STUDIES 1 AND 2……………………….123
C. SERVICE FAILURE SCENARIOS USED IN PAPER 2, STUDY 2……..125
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LIST OF TABLES
1.1 Second Level Correlations, Paper One………………………………………………………26
1.2 Summary of Results, Paper One……………………………………………………………..27
2.1 Results of the Regression Analyses for Study 1………………………………………......……..62
3.1 Conjoint Analysis Attributes and Levels…………………………………………………...102
3.2 Results of the Hierarchical Analysis………………………………………………………..106
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LIST OF FIGURES
1.1 The Effect of Public Discretion on CSR……………………………………………….……28
1.2 CSR and Public Discretion at Low Levels of IT Use………………………….…………….29
1.3 Interaction of Public Discretion and IT Use……………………………………...………….29
2.1 NWOM as a function of CSR Condition and Trait Environmental Concern………………..63
2.2 Anger as a Function of CSR Condition and Trait Environmental Concern…………………64
2.3 Variable means as a function of group (Study 2)……………………………………..……..67
2.4 Structural Equation Model for Study 2…………………………………………...…..……. 68
3.1 Mean Utitilies……………………………………………………………………………….107
3.2 Pervasiveness by Financial Returns………….……………………………………………..108
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Dedication
This dissertation is dedicated to my Mother and Father whose encouragement
made the long nights bearable.
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CHAPTER ONE
PAPER ONE
CORPORATE SOCIAL PERFORMANCE IN A DIGITAL, FREE SOCIETY
ABSTRACT
Corporate social responsibility (CSR) has been widely recognized as a response to
institutional pressures. Yet, to date few studies have linked the role of political freedom and
information technology in determining firm CSR activities. By adopting both institutional and
stakeholder theories, this paper hypothesizes that in societies defined by greater public
discretion, power and legitimacy is transferred to the public, enhancing its role as a legitimate
firm stakeholder and augmenting its ability to pressure firms to conform to expectations of
proper firm behavior. Additionally, this paper hypothesizes that information technology, in its
role as a medium promoting information diffusion and stakeholder collaboration, increases the
capacity of the public to generate and change institutional norms, thereby leading to greater
levels of firm social activity. The hypotheses are tested using a sample of firms across 47
nations. Results support the notion that public discretion, defined as participatory government,
leads to an increase in firm-level CSR. Additionally, information technology is shown to
positively moderate this effect. Theoretical implications and directions for future research are
discussed.
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INTRODUCTION
Over the last three decades, the prevalence of globalization and information technology
has led to a greater focus on corporate social responsibility (CSR) internationally, which has
become a phenomenon with important consequences for the global economy (Campbell, 2007;
Luo & Bhattacharya, 2006; Matten & Moon, 2008). Though CSR encompasses a range of
constructs delineating the relationship between business and society, we believe that CSR
incorporates a firm’s voluntary commitment for social improvement through activities that are
ethical and socially desirable in the eyes of stakeholders—such corporate policies and practices
go above and beyond legal requirements. This is consistent with the conceptualization by
Carroll (1991) and Matten and Moon (2008) who state that CSR fundamentally involves social
imperatives and consequences of voluntary policies and practices that reflect business
responsibility.
CSR is gaining prominence in the global economy more than ever before and firms are
now expected to account for both financial and social performance that reflects their overall
behavior in the eyes of global stakeholders in diverse countries (Chapple & Moon, 2005; Matten
& Moon, 2008; Visser, Middleton, & McIntosh, 2005). As CSR is intertwined with social,
cultural, political and institutional norms (Luo & Bhattacharya, 2006), it becomes particularly
difficult to initiate CSR activities that are consistent with both local and international
expectations of conduct. A key reason for such difficulty is that countries vary in terms of their
norms and institutional practices; for example, there is a huge variance among countries with
regard to the extent of political voice their publics have. Institutions that set and maintain such
norms play an important role in developing and shaping CSR opportunities because they are
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much more than background conditions and “directly determine what arrows a firm has in its
quiver as it struggles to formulate and implement strategy…” (Ingram & Silverman, 2002, p. 20).
Similarly, the role of digitally enabled social media cannot be underscored enough in the
diffusion of business practices such as CSR (Capriotti, 2011; Sahaym, Steensma, & Schilling,
2007). Though prior research recognizes that there is a huge variance among countries with
regard to factors such as public discretion (e.g., political freedom, presence of social media,
social norms, among others) and digital enablement (e.g. Norris, 2003), literature is yet to focus
its attention on how these factors influence CSR performance. Prior research has mostly focused
on examining the relationship between CSR and firm financial performance in the context of
U.S. or the U.S. based firms. Further, in the light of mixed results, the debate has mostly centered
on whether this relationship yields positive, negative or equivocal results.
While acknowledging that above research has made important gains, we build upon and
extend the preceding literature through two primary contributions. First, we respond to the
numerous calls made by the scholars such as Matten and Moon (2008, p. 419) who state that
future research should seek better “understanding of what CSR consists of, its specific
institutional underpinnings, and the national contexts in which corporations operate and whose
perceptions of appropriate social responsibilities they seek to live up to”. We not only identify
antecedents of CSR from diverse literatures but also highlight conditions that motivate CSR in
diverse national domains (e.g. Chapple & Moon, 2005 among others; Royle, 2005; Visser, et al.,
2005). Secondly, this paper advocates the use of more general measures of information
technology when exploring the effects of exposure and communication on firm social activities.
The preponderance of previous studies, when assessing the moderating role of communication,
has relied on traditional measures of mass communication such as broadcast and print sources.
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While these previous studies have made significant progress in developing our understanding of
how media relates to the institutionalization of firm CSR activities (e.g. Smith, 2003), scholars
need to acknowledge the fundamental changes in how a population receives, consumes and
shares information. The derivatives of information technology (social media, blogs etc.) are fast
becoming a prominent source of information diffusal; both complementing (Althaus &
Tewksbury, 2000) and in some cases, replacing traditional media outlets (Kaye & Johnson,
2003). Therefore, we argue that utilizing traditional media variables in CSR research is a useful
but incomplete predictor of firm behavior. Because the world is becoming increasingly global
and countries vary in the levels of public discretion (e.g., freedom of expression and voice) and
digital enablement, it is somewhat surprising that research is yet to focus on the role of these
factors in motivating CSR across nations.
We empirically examine the role of these factors using a sample of 757 firms across 10
industry categories from 46 countries. We build our theoretical framework by integrating the
insights of stakeholder theory, institutional theory and digital enablement literatures. Our
findings show a strong relationship between public discretion and firm CSR with information
technology use moderating the effect. We contribute to the literature both theoretically and
empirically because these reasoning and multi-level modeling have rarely been applied to the
CSR context across domains.
Theoretical background
According to Belu and Manescu (2012) a major challenge for empirical investigations
involving CSR as a construct is to “account for the multidimensional and heterogeneous nature
of CSR…” Drawing on indexes such as Thomson Reuters Asset4, CSR is generally viewed as
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corporations’ responsibility to integrate Environmental, Social, and Governance (ESG) practices
into their business model, beyond mandatory legal requirements (e.g., Ioannou and Serafeim,
2013). This is consistent with most of the scholarly definitions of CSR that consider CSR as a
composite, multidimensional construct capturing a business organization’s configuration of
principles of social, environmental and governance-related responsibility, processes of
responsiveness in these areas, and policies, programs, and observable outcomes as they relate to
the firm’s relationships with diverse stakeholders (Bowen, 1953; Carroll, 1991, Hillman & Keim,
2001; Waddock & Graves, 1997; Waldman, Siegel, & Javidan, 2006b; Wolfe & Aupperle,
1991and Ioannou and Serafeim, 2013; Wood, 1991: 693). In keeping with the precedent
established by authors such as Waddock and Graves (1997) and Cheng et al. (2011), we assign
equal weights to each of the social, environmental and governance-related responsibility areas of
performance.
A consensus is emerging among scholars that recognizes that global corporations are
engaged in multiple reciprocal relationships with various entities, such as communities,
governments, suppliers, consumers etc. (Donaldson & Dunfee, 2002). Scholars have come to a
conclusion that a firm is accountable not only to its owners, but also to a variety of stakeholder
groups (Donaldson & Preston, 1995; Windsor, 1992). Though it is difficult to include all the
groups that could have a ‘stake’ in business (Rowley, 1997); broader definitions of stakeholders
recognize that loosely-connected groups can also be affected by an organization’s operations and
include those as secondary stakeholders—as such, communities, the government, and other
external actors are recognized as secondary stakeholders. Scholars have presented a range of
definitions with narrower definitions including just those who “have a vested interest in the
corporation in the form of capital” (Clarkson, 1995) whereas extremely broad definitions
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encompassing a fairness-based approach includes even non-human entities such as the natural
environment (Phillips & Reichart, 2000).
Secondary stakeholders can put pressure on a firm to engage in socially responsible
behavior based on their power, legitimacy and the urgency of the issue (Mitchell, Agle, and
Wood (1997). They interact with firms mostly for instrumentality, identity and ideology as they
pursue specific interests, act upon their ideological positions and strengthen their identity (Den
Hond & De Bakker, 2007; Johnson & Prakash, 2007; Klandermans, 2004; Rowley &
Moldoveanu, 2003). In the case of conflict between business and society or unexpected events,
their power cannot be underestimated, such as during the Olympic Torch controversy in 2008
(Horne & Whannel, 2010), the 2010 Deepwater Horizon catastrophe, or the Exxon Valdez oil
spill. Secondary stakeholders are legitimate holders of particular stakes in a nation’s business and
political environment. When there is ‘governance without government’ (Vogel, 2007) or ‘private
politics’ (Baron, 2003), secondary stakeholders play an important role in civil societies. Under
contingencies, they often form protest groups and develop social movements that can hurt the
interest of a firm (Wheeler, Fabig, & Boele, 2002, p. 302). Often, they have motivated firms to
pursue a systematic approach to public affairs and publish regular annual reports including
health, safety, and environment issues. Also, they are present in every country, for example,
China, a country with relatively lower public discretion, had over 354,000 NGOs registered with
the concerned Ministry by the end of 2006 and their numbers increased to 420,000 by the end of
2009 (Lau, 2009; Li, 2012) 1
.
1 Such NGOs in China belong to one of the following types: social organizations, non-governmental, non-
commercials enterprises, or foundations (Irish, Jin, & Simon, 2004).
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Both the stakeholders and CSR process have been transformed by information
technology (IT) revolution in the past three decades. CSR is a process that needs diffusion and in
recent years, information and communications technology has revolutionized the communication
and coordination within and between firms (Sahaym, et al., 2007). Digital enablement and social
media have played a key role in the globalization process. IT is considered as one of the key
levelers in the world that is increasingly getting flatter (Friedman, 2005). Esrock and Leichty
(1999) noted that IT enables efficient multi-stakeholder dialogue and CSR becomes “an ongoing
and interactive process rather than a static annual product (Antal, Dierkes, MacMillan, & Marz,
2002, p. 34)
However, the role of institutions remains as important as before for the success of
business processes like CSR because institutions have transformed themselves as enablers of the
process and often negotiate with business on providing societal benefits to the community
(Ingram & Silverman, 2002). In our context, institutions consist of only the formal organizations
of government and corporations but also norms, incentives, and rules. This is along the lines with
March and Olsen (1989) who define institutions as “collections of rules and routines that define
actions in terms of relations between roles and situations” (p. 160). Institutions are associated
with shared values and meaning and promote predictable and patterned interactions for stability
(Peters, 1999).
We also believe that firms proactively engage in CSR as part of political management.
Corporate political strategies are designed to align the external environment with the internal
capabilities of the firm (Galbraith & Kazanjian, 1986; Oliver & Holzinger, 2008). Oliver and
Holzinger (2008, p. 497) posit them as "dynamic processes by which a firm influences or
complies with their political environment for purposes of generating future value for the firm or
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protecting the current value of the firm from future loss or erosion." Firms plan and enact such
strategic actions by forming relationships with stakeseekers in order to maximize economic
returns within the governmental and political environments (Bonardi, 2005; Getz, 1997; Hillman
& Keim, 1995; Shaffer, 1995). Seen through the lens of social capital, such strategies can be
viewed as contributing toward the development of resources and capabilities through social
relations (Adler & Kwon, 2002; Inkpen & Tsang, 2005; Oliver & Holzinger, 2008). For
example, the effects of goodwill gained from these relationships include access to privileged
information, influence, and solidarity (Adler & Kwon, 2002). Social relations often deal with the
exchange of gifts and favors. The structural part, i.e., personal ties, facilitates trust and
trustworthiness, bolstering the relational dimension of corporate political management (Tsai &
Ghoshal, 1998). Indeed, the bridging view of relationships highlights the role of leveraging
external relations in a firm’s success in competitive environments (Adler & Kwon, 2002).
Further, executives engage in corporate political management to produce public policy favorable
to their economic survival and continued success (Keim & Baysinger, 1988, pp. 171-172;
Schuler, 1996). Corporate political management can define or shape the norms, standards, and
beliefs of an industry or reframe public perceptions contributing to competitive advantage
(Hillman & Hitt, 1999; Inkpen & Tsang, 2005).
An integration of insights in the context of this study
We believe that firms engage in CSR for a variety of reasons, but mostly CSR
incorporates a firm’s voluntary commitment for social improvement through ethical and social
activities. We propose that key drivers of CSR include public discretion and digital enablement
across countries. As secondary stakeholders can put pressure on firms to engage in CSR through
their power, legitimacy and social capital, levels of public discretion in a country will affect the
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engagement of firms in CSR. From the lens of firms, managers would engage in CSR as part of
corporate political management. They would like to shape the norms and produce public policy
favorable to their economic survival and continued success. Similarly, we propose that CSR is
process and its diffusion is contingent on the levels of digital enablement as IT enables multi-
stakeholder dialogue.
HYPOTHESES DEVELOPMENT
Public discretion and CSR
Firms are embedded in wider societal and political arrangements and become part of
local, national, and transnational polities (de Bakker & den Hond, 2008). They are subjects and
objects of national institutional environments. As such, they are engaged in multiple reciprocal
relationships with various entities, such as communities, governments, suppliers, consumers etc.
(Donaldson & Dunfee, 2002). These entities are often considered secondary stakeholders or
stakeseekers as they do not have a formal contractual bond with the firm or direct legal authority
over the firm and firms are not contractually obligated to serve such stakeholders (Eesley &
Lenox, 2006). Such stakeholders often claim to have or ‘seek’ a stake in the corporation’s
decision making for gaining legitimacy and instrumentality, reinforcing their own identity and
ideology (Heath, 1997; Holzer, 2008).
While legitimacy can be secured by performing well in an economic arena, economic
legitimacy is, by itself, seldom sufficient to justify a firm’s operations. Patten (1991, 1992)
differentiate between economic and social legitimacy explaining that, while economic legitimacy
is conferred by the market, social legitimacy is conferred through the public policy arena. This
means that how a firm responds to and presents itself in light of social issues is a major
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determinant of the public’s perception of the firm as a legitimate actor. Variations in these
institutional configurations can lead to differing perceptions as to what constitutes ‘legitimate’
and ‘illegitimate’ activities. These variations, derived from public policy can arise from the
dissatisfaction of people, new or proposed legal action and regulatory oversight (Walden and
Schwartz, 1997). Ultimately, it is the discretion of the public, filtered through formal governing
institutions, that creates the normative grammar for firm social conduct.
However, there is a huge variance among countries with regard to discretion (e.g.,
freedom of expression) that their publics have. There are countries such as the U.S.A. on one
extreme where stakeseekers have high degree of influence in shaping CSR domain and on the
other extreme; we have countries like Sudan where secondary stakeholder power is almost non-
existent. This is important to consider because individual preferences regarding the social
behavior of corporations are aggregated and passed through institutional configurations to arrive
at country-level outcomes (Coleman, 1987). Therefore, variance in accessibility and participation
in the public policy process can drastically affect which social issues are given credence at the
national level. Since stakeholder power is reduced, under a repressive regime the influence and
effectiveness of various social interest groups such as NGOs and trade unions is reduced (Gastil,
1990), meaning firms only have to justify their operations to a smaller, more select group (Iqbal,
1997). This logic is supported by studies such as Belkaoui (1985) which find that political
freedom of a population is directly related to the extent and quantity of social reporting and
disclosure by organizations. Further, in more democratic nations where international, pro-social
agreements are more likely to be ratified (Cho and Patten, 2007), social activities are more likely
to be effective as a legitimizing tool.
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With the support of government and institutions, the citizenry becomes a formidable
force with the capability to negotiate with businesses. Stakeholders are “providers of legitimacy
but they can just as easily withdraw it” (Chiu & Sharfman, 2011, p. 1564). They have both the
coercive power and an ability to provide a normative grammar for corporate conduct. At a higher
level of discretion, stakeseekers may engage in shaping their governing institutions by
mobilizing citizens in favor of their ideology and advance claims on a national stage. Firms must
manage stakeseekers as under these circumstances institutions become accountable to
stakeholders and society becomes a powerful force in determining regulations that can directly
influence firm performance. At this level of public discretion, firms seek coalition with
stakeseekers and political-coalition perspective recommends collaborative relationships between
business and stakeseekers (e.g., between business and philanthropic organizations, non-
government organizations (NGO) and social movement organizations (SMOs), among others)
for productivity and societal benefits. As such, firms engage in CSR as a form of stakeholders’
political management as well as strategic philanthropy. By committing to CSR activities they are
communicating that they are both concerned about and responsive to the needs of society in
which they operate (Ellen, Mohr, & Webb, 2000).
At low levels of public discretion when democratic freedom, government’s
responsiveness to society, and freedom of press etc. are low, we may observe a similar effect. At
this level, businesses often take a lead in propagating voice and accountability. They proactively
forge relationships with any existent groups for espousing social causes, philanthropic purposes
as well as political management. Corporate political strategies are designed to enhance the
influence of firms in the political environment for generating future value. In the relative absence
of institutional entities, firms may engage in CSR by forming relationships with local citizenry.
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Along the lines of strategic philanthropy, such CSR may earn them social capital and goodwill in
governmental and political environments. The social capital they develop contributes to the
development of resources and capabilities via access to privileged information, influence, and
solidarity for long term competitive advantage (Adler & Kwon, 2002; Inkpen & Tsang, 2005;
Oliver & Holzinger, 2008). In sum, firms often take lead in CSR activities when public
discretion is low. They bring valuable information, awareness and knowledge, and global norms
often playing the role of protagonists in developing civil society.
Therefore, we predict that in an environment with stronger stakeholder power as
characterized by higher public discretion, firms will attempt to develop and maintain their
legitimacy by engaging in more socially responsible activities. Conversely, in levels with low
public discretion we predict firms will proactively engage in CSR for instrumental purposes. At
intermediate levels, neither legitimacy-seeking nor instrumental motivation is compelling enough
for the firms to engage in CSR. These arguments suggest a U-shaped relationship between levels
of public discretion and firms’ engagement in CSR. In essence, firms engage in higher levels of
CSR at low and high levels of public discretion than at intermediate levels of public discretion.
H1: Levels of public discretion in a country (i.e., degree of freedom of expression, political voice
and accountability) will have a positive curvilinear effect on CSR such that CSR will be higher at
both low and high levels of public discretion.
Public discretion, IT enablement and CSR
As discussed above, stakeholder communication and collaboration are essential for
shaping the institutional environment. Social movements often predicate institutional upheaval
and reformulation (Offe, 1985); and corporate social responsibility is one such phenomenon that
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diffused with social awareness, movement and need for change. For example, in the 1970s, US
firms were faced with growing public concern for a variety of issues including environmental
conservation, worker safety, and equal treatment. This turbulent period of institutional upheaval
forced a change in public policy and served to alter and add substance to the definition of
‘corporate social responsibility’ (Carroll, 1999). Given that social movements are a powerful
force for altering the institutional landscape, it is important to note that social movements are “to
a considerable extent, communication phenomena” where communication “is essential to every
stage of a movement’s trajectory” (Hackett, 200 p.61).
Acknowledging the relationship between stakeholder communication and incentives for
firms to engage in CSR, various other studies have utilized ‘media’ as both predictors and
moderators for CSR (e.g. Chiu and Sharfman, 2011). The logic is such that media exposure
enables secondary stakeholders to become informed about a firm’s social performance, make
judgments regarding the desirability of that performance, and reward and punish the firm
accordingly; thereby, in some respects, enabling media outlets to take on the role as ‘watchdog’
(Miller).
While media, as previously measured, undoubtedly serves an important role in the
evolution and shaping of the institutional environment, we believe that a more complete picture
of the CSR phenomenon would emerge if diverse information technologies are considered
instead of a narrow focus on media. First, while media plays an important role in shaping
environment, many national media sources are incorporated entities, meaning the content, focus,
and delivery of information is hindered by workplace routines. As such, content that is filtered
through these media sources and may be subject to ideological biases (Groseclose & Milyo,
2005), framing effects (Scheufele, 1999), and organizational imperatives among others. This
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means that the portrayal and legitimacy of social concerns may be altered to conform to an
established hegemony which ultimately could alter the evolution of the social institutional
environment. Secondly, while media is an important tool for raising stakeholder awareness, the
media outlets utilized in previous studies (i.e., broadcast and print) are inherently unidirectional.
Receivers (the public) are consumers of the media message with little, if any, interaction.
We believe future research should focus more on interactive information technologies in
place of unidirectional media when investigating CSR. Prior research has shown that IT is the
most effective medium for interactivity, dialogue and multiple-way communication with
stakeholders—only face-to-face individual meetings surpass IT in some of these aspects (Mithas,
Ramasubbu, & Sambamurthy, 2011; Moreno & Capriotti, 2009; Rolland & Bazzoni, 2009).
Unlike traditional forms of media, information technology enables dynamic, reciprocal
interactions in which people are both senders and receivers (Birth, Illia, Lurati, & Zamparini,
2008; Dawkins, 2004; Moreno & Capriotti, 2009; Morsing & Schultz, 2006; Rolland & Bazzoni,
2009). This allows for unparalleled coordination and collaboration among stakeholder groups,
activists and other citizens which, in turn, can influence organizational and institutional activities
to better reflect the expectations of social stakeholders (Jacobs, 2005).
Scholars acknowledge that CSR is often part of corporate strategy and IT enablement
plays an important role in the diffusion of CSR efforts (Dawkins, 2004; Etter & Plotkowiak,
2012; Morsing & Schultz, 2006). This is because IT facilitates coordination among various
stakeholders, enhancing organizational effectiveness in dealing with actors between firms and
stakeholders, firms and institutions, and stakeholders and institutions (Afuah, 2003; Hitt, 1999;
Sahaym, et al., 2007), Indeed, aside from electricity, IT is considered to be one of the two most
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important general-purpose technologies to date in terms of economic (Jovanovic & Rousseau,
2005) and social (Fountain, 2001) impact.
This is consistent with the findings of case studies by Nugroho (2008) in the context of
Indonesia. He states:
“The terrain of Indonesian civil society (activities)…has considerably
changed in the past decade: from a fairly focused concern about state-centrist
issues, to…the role of non-state actors like business and private sectors…the
focus of issues and concerns of Indonesian NGOs today are not only about
building social awareness…(for)…promoting the democracy and human rights
that were present in the past (as observed by Bird, 1999; Eldridge, 1995; Fakih,
1996; Sinaga, 1994; Uhlin, 1997) but also about enlightening society with
contextual issues and societal concerns which stem from globalization…(This) is
very much a consequence of the use of new information and communication
technologies, particularly the Internet, in many organisations within civil society.
Evidence shows that not only does Internet use impact upon NGO’s performance
in terms of internal management, but more importantly, that such use has
contributed to the widening of organisational perspectives, the expansion of
organisational networks and has thus increased organisational influences in
society. In fact, this technological use, to some extent, can also be seen to be part
of the strategy of Indonesian NGOs to build critical views towards the practices
of globalisation through their engagement with various civic groups” (page 23).
In the United States the effectiveness of the combination of high discretion and IT
enablement was demonstrated in influencing the outcome on Stop Online Piracy Act (SOPA), a
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bill advanced in the US congress with the intent of strengthening copyright protection by holding
internet companies liable for content posted on their sites (Sanchez, 2012). Opponents, mostly
secondary stakeholders, argued the bill would amount to censorship and would harm innovation.
Secondary stakeholders organized a nation-wide protest using various IT tools—they
communicated, coordinated and organized protests channeling and exchanging information
throughout the U.S.A. These protests culminated in major interest groups voluntarily censoring
their websites on January 18, 2012; and consequently representatives decided not to pursue this
bill. The U.S. environment consists of both the high levels of discretion and IT enablement—
indeed; it provided an ideal context for such protests and consequent outcome.
From the lens of stakeholders, high degree of public discretion grants them certain
legitimacy and they need information, knowledge and capability to effectively deal and negotiate
with businesses. IT enablement provides such stakeholders with relevant data and information
with appropriate levels of accuracy, timeliness, and reliability. Diverse stakeholders even from
geographically distant locations can come on common platform and leverage universal
connectivity and global reach for promoting their sociopolitical objectives. Firms’ top
management teams (Firm TMTs) and stakeholders’ key functionaries can use diverse IT
resources (e.g., conferencing, group support systems, database management systems) for
determining one-another’s requirements, expectations, and preferences.
IT enablement accentuates freedom, voice and transparency through modes such as
Internet-based message boards, virtual communities, and personalized information channels. In
the countries with high levels of discretion, secondary stakeholders such as publics and NGOs
can effectively monitor, evaluate, and control their activities systems based on the real-time,
online information (Bourne, Neely, Platts, & Mills, 2002; Eccles, 1991; Kaplan & Norton, 1992).
17
In such contexts, IT enablement provides flexibility, speed, and cost efficiency to NGOs, publics
and citizenry. These entities gain valuable reach and connectivity crossing geographical
boundaries to leverage the discretion they have and proactively initiate sociopolitical and cultural
events that can connect diverse organizations and institutions. Such entities can even use IT tools
to assess their performance over time using various project management tools, metrics and
analytics. Indeed, organizations in every walk of life have invested in IT for efficient
communication and coordination with entities within and across firm boundaries (Bharadwaj,
2000; Mithas, et al., 2011).
As IT resources and capabilities have emerged as an effective medium for interactivity,
dialogue and two-way communication with stakeholders, a key premise is that variance in the
levels of public discretion and IT enablement will influence firms’ engagement in CSR.
Therefore, we predict that the positive effect public discretion has on CSR will be enhanced by
information technology usage. Specifically, we hypothesize that at high levels, IT use will
positively moderate the effect of public discretion on CSR.
H2: At the highest levels of IT enablement, public discretion will have a positive effect on firm
CSR.
At the lowest levels of IT use when information diffusion, communication and
collaboration are relatively muted, public discretion will not have as much effect on CSR. Public
discretion contributes to secondary stakeholder power and CSR via superior representation, a
free press, and legal system. Though public discretion can motivate CSR to a certain extent, its
effect will diminish beyond a point for the want of IT which plays an important role in diffusion,
communication and collaboration (Fountain, 2001). At the lowest levels of IT when such
benefits are at their minimum, it would be difficult to develop a critical mass of publics and
18
stakeholders who can motivate and scale up CSR to its maximum. As such, we maintain that at
the lowest levels of IT use where information diffusion, communication and collaboration are
relatively muted, public discretion will retain a positive yet diminishing effect on firm CSR. This
is made evident in countries such as Jordan and Egypt where social change has suffered from
inertia and rigidity. It was not until the proliferation of the internet that citizens were given a tool
for free association thus weakening the strength of exclusionary government practices (Wheeler,
2006).
Secondly, in line with previous arguments, a firm may be more inclined to engage in
CSR in a country defined by greater public discretion, but without an efficient tool for
disseminating information about corporate activities among the public the institutional pressure
to engage in more significant levels of CSR activity may be absent. Overall, we hypothesize that
while public discretion will retain a positive impact on CSR, the effects will diminish in
countries with low levels of IT enablement.
H3: At the lowest levels of IT enablement, public discretion will have a positive but diminishing
effect on CSR
METHODS
In line with our theory, we collected both firm level and national level data. As such we
started by collecting data from the Thompson Reuters Asset4 data set. Asset4 was founded in
2003 in Switzerland and it was acquired by Thomson Reuters in 2009. Asset4 collects data and
scores firms on three broad pillars of social responsibility relating to the environment, society
and governance (Cheng, Ioannou, & Serafeim, 2011). Research analysts collect more than 900
evaluation points per firm, where all the primary data used must be objective and publically
19
available. Each firm receives a standardized z-score for each of the CSR categories in the
dataset. We then matched these firms with data from the nation they reside in. This data was
collected in line with country-level variables relating to information technology and political
voice. After the full aggregation of our data we were left with 740 firms from 46 different
nations.
Dependent variable
At the firm level our dependent variable of interest, CSR, was created using scores obtained from
the Thomson Reuters Asset4 dataset. The scores for each broad CSR category (environmental,
social and governance) are reported from 0 to 1. This rating methodology has several key
advantages over earlier methods of assessing CSR performance. Prior studies have relied on a
variety of methods including reputation indices (McGuire, Alison, & Schneeweis, 1988),
subjective surveys (Luo & Bhattacharya, 2006), and industry professional ratings. The difficulty
with using tools such as a reputation index is that they have been found to be biased toward
financial performance (Fryxell & Wang, 1994). According to Cheng, et al. (2011), rating
services such as KLD (Kinder, Lyndenberg, Domini) and Asset4 overcome these weaknesses by
measuring objective criteria such as the amount of firm hazardous emissions in addition to expert
analysis. Since Asset4 reports aggregate scores regarding environmental, social, and governance
performance, the second challenge becomes assigning category weights. As previous authors
have noted (Cheng, et al., 2011; Mitchell, et al., 1997), there is still no theoretical justification
for assigning differential weights to CSR categories. In keeping with the precedent established
by authors such as Waddock and Graves (1997) and Cheng, et al. (2011), we assign equal
weights to each area of performance. Thus, CSR is an average of an individual firm’s
performance.
20
Independent variables
Our hypotheses predict that the ability of the citizenry and stakeholders to formally and
informally influence diverse institutions in addition to the structure of the institutional
environment will impact the level of socially responsible behavior of firms. This reflects the
authority or discretion of publics to influence CSR performance—we refer this construct as
public discretion along the lines of managerial discretion (e.g. Finkelstein & Boyd, 1998;
Hambrick & Finkelstein, 1987) which reflects managers’ influence on their organization’s
strategic direction, structure, and performance.
To capture public discretion, we employed data collected from the World Bank’s
Worldwide Governance Indicators Survey. The survey captures national governance information
across six factors from three core governance areas: the ability of the government to change and
be replaced, the effectiveness of the government in implementing and enforcing policies, and the
degree to which institutions and citizens respect the established legal framework. Specifically,
we use a measure of monitoring and change entitled “voice and accountability,” described by the
authors as “capturing perceptions of the extent to which a country's citizens are able to
participate in selecting their government, as well as freedom of expression, freedom of
association, and a free media” (Kaufmann, Kraay, & Mastruzzi, 2010). The measure is
calculated by obtaining data from a variety of sources including direct surveys and expert ratings
from governmental and non-governmental organizations (NGOs). An example of factors
includes Freedom House’s measure of press freedom, and surveys from the Gallup World Poll.
The diverse rating scales are then standardized and included in a linear function to arrive at a
score between -2.5 (least public discretion) and 2.5 (most public discretion).
21
Our second variable of interest, IT enablement, is conceptualized as the ability to
perform work processes using a variety of IT resources and capabilities (Rai & Sambamurthy,
2006; Sahaym, et al., 2007). Information systems scholars emphasize that digital or IT
enablement provides resources and capabilities, structures, and routines through which
organizations can conceive and create desired processes for providing services or developing
products, plan how these are offered and orchestrated, and how interactions and exchanges for
productivity and performance will be managed (e.g. Mithas, et al., 2011; Rai & Sambamurthy,
2006).
To capture these concepts we collected data about usage rates and technology
infrastructure for the nations in our sample as a proxy for IT enablement. In particular, data were
collected on the percentage of homes with access to computers and the percentage of the
population who reportedly used the internet. This is in keeping with previous research that
describes internet access, including the requisite hardware, as the foundational element of digital
communication (Guillen & Suárez, 2005). In addition, broadband internet represents a “mature
service” (Maier, Feldmann, Paxson, & Allman, 2009), enabling tightly integrated IT interaction
and information diffusion. The usage of broadband internet promotes greater connectivity,
thereby augmenting the level of interaction between, governments, businesses and society (Firth
& Mellor, 2005). To account for the enhanced collaborative and monitoring potential of
broadband, data on the number of broadband internet connections per capita was obtained. All
data regarding hardware, usage and infrastructure were obtained from the World Bank Country
Survey and the United States CIA World Factbook. Due to high correlations among our
measures for IT enablement, a single factor was extracted using maximum likelihood estimation.
22
Each of the three variables exhibited strong loadings for the single factor solution (greater than
.85), with the factor accounting for 90.52% of the variance in the sample.
Controls
To investigate the impact of public discretion and IT use on CSR we found it necessary to
control for other predictors of CSR activity. In particular, previous research has established that
firm size may alter the strategic focus of a firm, increase its visibility, or in the case of larger
firms, place greater emphasis on responsible activities due to their positions of power
(McWilliams & Siegel, 2001; Udayasankar, 2008). Thus, to account for effects caused by the
scale and scope of firm operations, we control for firm size as measured by total assets in USD.
Second, firms may have greater ability to invest in CSR initiatives by virtue of their
resource stocks (Orlitzky, Schmidt, & Rynes, 2003; Waddock & Graves, 1997). Specifically, as
firms control greater levels of discretionary funds and resources, the basic building blocks of
firm activities (Mathews, 2002), they are given access to a wider set of opportunities. When
firms are resource poor, management may be unwilling to commit scarce resources to CSR
activities which may not have a direct impact on financial performance (Barnett, 2007).
However, when firms are resource rich, management may shift its focus and invest in more
uncertain CSR activities. This is consistent with prior findings which demonstrated that prior
profitability and slack resources were significant predictors of CSR performance (Kraft & Hage,
1990; Seifert, Morris, & Bartkus, 2004; Stanwick & Stanwick, 1998) To control for the effect
slack resources may have on CSR performance, we include available slack as measured by the
current ratio (Bromiley, 1991).
Third, while this study focuses on national-level determinants of CSR, we acknowledge
that these are not the only normative frameworks influencing firm behavior. In particular, firms
23
within similar industries may face specialized expectations for proper conduct. Membership
within industry-specific organizations, strategic activities from direct competitors, and similarity
of organizational processes may create variability between industry clusters with regards to firm-
level provision of public goods. To control for industry effects, we utilize the 10 industry
categories present in the Asset4 database, dummy coded with the financial and banking industry
as the baseline.
We also control for multiple variables of interest at the national level. In-line with prior
research which demonstrates the wide-ranging impact of economic development and education
(e.g. Mauro, 1998) we control for the GDP per capita of the nation, and level of education
measured by the average number of years in school by citizens over the age of 25.
Next, perceptions of acceptable levels of CSR are not uniform across nations. Attitudes,
beliefs, regulations, and institutional pressures differ between states resulting in heterogeneous
pressures for firms to engage in CSR activities (Gjølberg, 2009b; Matten & Moon, 2008). In
particular, we focus our attention on European “welfare states” where stronger labor bargaining
power and more stringent environmental and social regulations may influence firm scores on our
measure of CSR. To control for these national-level effects we included data from the
Environmental Sustainability Index (ESI). The ESI is a rating system published by the Yale
Center for Environmental Law and Policy which, among other factors, measures the strength of a
nation’s environmental regulations (Esty, Srebotnjak, & de Sherbinin, 2005). Specifically, we
chose the ESI measure of “global stewardship” which accounts for, among other things, a
country’s efforts to reduce greenhouse gas emissions and participation in transnational
environmental agreements (ESI). The ESI measure is strongly correlated with nations adopting
more stringent socially responsible firm regulations (Gjølberg, 2009a).
24
Additional, evidence suggests that governmental control of an economy stymies the
ability of stakeholders to pressure firms to engage in CSR (Baughn, Bodie, & McIntosh, 2007).
For instance, in Asian firms with strong ownership by government interests, inertia is introduced
which slows progressive change with regards to responsible firm governance (Kimber & Lipton,
2005). Additionally, when “the state is seen as the institution in charge of social welfare”
(Baughn, et al., 2007 p.194) the focus shifts from responsible stewardship by private firms to
government distribution of public goods (Weaver, 2001). To account for this effect we include a
measure of economic freedom published by the Heritage Foundation (Miller & Holmes, 2009).
The scale measures the extent to which a government interferes with the workings of the market
by inhibiting the flow of capital, labor and goods. The index has been widely used by scholars
(e.g. De Haan & Sturm, 2000; Goerzen & Beamish, 2003) to study topics such as
internationalization and economic development.
Finally, to account for the causal nature of our predictions, all variables were lagged one
year with respect to our dependent variable.
MODEL
In view of the multi-level hierarchical nature of our theoretical model which requires
cross-level analysis, our datasets are hierarchical in structure. We developed our model such that
it accommodates the complex nature of international diversification where variables at lower
level in hierarchy (i.e., firm-level) get influenced by higher level (e.g., country-level) variables.
Some of the challenges in developing this model are as follows: 1) As we test how country-
specific advantages interact with firm-specific advantages underscoring non-independent nature
of hierarchical data, some of these influences may not be completely independent, and 2) the
nested nature of relationships violates the assumption of equal residual variance.
25
In view of these parameters and constraints, we determined that simple OLS (ordinary
least squares) regression method is not appropriate to test our research model for the following
reasons: 1) nested nature of relationships, 2) non-independence of hierarchical data, and 3) OLS
ignores the dependence among observations leading to underestimation of the standard errors
(Hofmann, 1997). Our assessment is consistent with that of the researchers such as (Hofmann,
1997) who underscore that higher level (e.g., country-level) variables tend to be deflated within
an OLS framework.
Thus, we employed a multi-level modeling technique to conduct a nested level of
analysis—the Hierarchical Linear Modeling (HLM) (Raudenbush & Bryk, 2002). HLM is
appropriate for examining cross-level analyses because it can take into account the nested, non-
independent nature of the data by partitioning and estimating simultaneously, both within and
between groups (Raudenbush & Bryk, 2002). The HLM simultaneously computes the two
models for estimation, one that uses country-level parameters (Level 2) and the other that uses
firm-level parameters (Level 1). Further, the first model estimates relationships within each of
the lower level units, and the second model estimates how these relationships within units vary
between units (Hofmann, 1997). This approach can explicitly model both individual and group
level residuals and helps us in taking into account the partial interdependence of individuals
within the same group.
RESULTS
Table 1 shows the correlations among the variables in our model. Table 2 shows the model
estimates for our models on CSR. There are four models included in our analysis. Model 1
includes the control variables only. Model 2 tests the linear relationship for public discretion and
26
CSR while Model 3 tests the curvilinear relationship. Finally, Model 4 tests the moderation of
the public discretion-CSR relationship by IT enablement.
Table 1.1
Level-2 Correlations
Variable Mean s.d. 1 2 3 4 5 6
1 Public_Discretion 0.51 0.96 -
2 GDP Per Capita 27154 22076 .529** -
3 Education 9.56 2.21 .663** .540** -
4 ESI_Global 49.18 19.19 .369** 0.17 0.07 -
5 Econ. Freedom 67.2 11.24 .618** .549** .585** 0.21 -
6 IT_Enable 0 0.98 .734** .737** .774** 0.24 .707** -
Note. ** Correlation is significant at .01
Regarding the controls tested in Model 1, total assets (β =.06, p<.001) had a significant
effect on firm CSR activity. This result mirrors predictions from past research (Lepoutre &
Heene, 2006; McWilliams & Siegel, 2001) which state that larger firms are more likely to
engage in CSR due to greater access to resources, improved opportunity recognition resulting
from increased absorptive capacity, and additional stakeholder pressure derived from greater
expectations of socially responsible behavior. Additionally, our categorical variables for industry
produced significant effects in energy (β = .05, p<.01), non-cyclical goods (β = -.15, p<.001),
and technology (β = .09, p<.001), confirming our expectations that varying normative
frameworks at the industry level would impact the provision of CSR at the firm level.
Our first hypothesis predicts a positive curvilinear relationship between public discretion
and CSR. Model 2 tests the main, linear effect and model 3 introduces the quadratic term. Based
upon the results we find support for a significant, substantive curvilinear relationship. After
controlling for country level education, GDP per capita, economic freedom, previous
institutionalization of CSR and our various firm-level variables, both the singular (β = 0.14, p <
.001) and the squared term were positive (β = 0.05, p < .05). In line with our predictions, firm-
27
level CSR was greatest at both the lowest and highest levels of public discretion, lending support
for the assertion that public discretion has a multi-faceted effect of firm CSR activities. Figure 1
shows the curvilinear nature of this relationship.
Table 1.2
Summary of Results
Model 1 Model 2 Model 3 Model 4
Variables β
s.e. β
s.e. β
s.e. β
s.e.
Intercept 0.54 *** 0.03 0.53 *** 0.03 0.53 *** 0.03 0.54 *** 0.03
Firm Level (Level 1)
Controls
Total Assets 0.06 *** 0.01 0.06 *** 0.01 0.06 *** 0.01 0.06 *** 0.01
Slack Resources
-
0.01 *** 0.00 -0.01 *** 0.00 -0.01 *** 0.00 -0.01 *** 0.00
Ind. - Energy 0.05 ** 0.02 0.06 ** 0.02 0.05 ** 0.02 0.05 ** 0.02
Ind. - Raw Materials 0.00
0.03 0.00
0.03 0.00
0.03 0.00
0.03
Ind. - Industrial Equip.
-
0.02
0.02 -0.01
0.02 -0.02
0.02 -0.02
0.02
Ind. - Cyclical goods 0.02
0.05 0.02
0.05 0.02
0.05 0.02
0.05
Ind. - Non-cyclical Goods -0.15 *** 0.03 -0.15 *** 0.03 -0.15 *** 0.03 -0.15 *** 0.03
Ind. - Healthcare 0.00
0.03 0.00
0.03 0.00
0.03 0.00
0.03
Ind. - Technology 0.09 *** 0.02 0.09 *** 0.02 0.09 *** 0.02 0.09 *** 0.02
Ind. - Telecommunications
-
0.06
0.04 -0.05
0.04 -0.05
0.04 -0.06
0.04
Ind. - Utilities
-
0.02
0.03 -0.02
0.03 -0.03
0.03 0.02
0.03
National Level (Level 2)
Controls
GDP Per capita 0.00
0.00 0.00
0.00 0.00
0.00 -0.01
0.05
Education -0.03 † 0.02 -0.04
0.02 -0.03 * 0.01 0.01
0.05
ESI - Global 0.00
0.00 0.00
0.00 0.00
0.00 0.03
0.05
Economic Freedom 0.00
0.00 0.00
0.00 0.00
0.00 0.00
0.00
IT_Enable 0.07
0.04 0.03
0.04 -0.01
0.04 -0.05
0.04
IV
Public_Discretion
0.13 *** 0.03 0.14 *** 0.03 0.11 *** 0.04
Interactions
Public discretion2
0.05 * 0.02 0.06 * 0.03
IT_Enable x Public Discretion
-0.01 † 0.05
IT_Enable x Public Discretion2 0.06 * 0.03
*** = p<.001; ** = p<.01 * = p<.05; †=p<.10
28
In Model 4 we examined the effect of public discretion on firm CSR as moderated by IT
enablement. The results of the interaction of public discretion and IT enablement (β = -0.01, p <
.10) indicate that public discretion (β = 0.06, p < .05) has an inverse-u relationship with CSR
under low levels of IT enablement, but a positive curvilinear relationship under high levels of IT
enablement. Thus, we find support for our contention offered in hypothesis 2. In countries with
high levels of IT enablement and public discretion, firms were more prone to engage in CSR
related behavior. Likewise, in developing economies, classified as high levels of IT enablement
yet low levels of public discretion firms also exhibited a tendency to engage in socially
responsible behavior. Due to the complex nature of this relationship Figure 3 shows the nature of
our models results.
Figure 1
The Effect of Public Discretion on CSR
\
29
Figure 2
Public discretion and CSR at low levels of IT use
Figure 3
Interaction of Public Discretion and IT Use
30
DISCUSSION
This study sought to examine national level conditions under which firms would be more
likely to engage in socially responsible behavior. A powerful determinant of firm behavior is the
ability of primary and secondary stakeseekers to establish and enforce institutional norms. We
have built upon prior research from authors such as Mitchell, et al. (1997) who state that
stakeholder efficacy is determined by elements of power, legitimacy and urgency. Since firms
are dynamic, political entities, engaged in a reciprocal relationship with their environment
(Garriga & Mele, 2004), the ability of the public to be self-governed and make their voices heard
on the national stage will augment the business climate at the firm level. We argued that in a
society defined by greater degrees of freedom and public discretion, power and legitimacy is
inherently transferred to the public, enhancing its ability to erect normative constraints on private
sector firms. Secondly, at the lowest levels of public discretion we argued that firms work to fill
the institutional vacuum, in effect pursuing more socially responsible behavior. We also
introduced the prevalence and usage of information technology as a moderating effect. Our
argument states that since information technology allows for the rapid distribution of information
and collaboration among stakeholders, it thereby becomes a mechanism which improves the
ability of the public to monitor firm behavior and collaborate for the achievement of their
sociopolitical objectives. We hypothesized that IT use would interact with public discretion
resulting in a stronger, positive effect on CSR.
Our results confirm the importance of public discretion when predicting the provision of
firm-level CSR activities. Nations with the highest levels of public discretion contained the most
socially responsible corporations. We also find that relatively low public discretion was
associated with an increase in CSR behavior. Similarly, there was a significant interaction
31
between information technology use and public discretion. In instances of higher IT enablement,
public discretion had a stronger effect on firm CSR behavior. Conversely, at the lowest level of
IT enablement, public discretion had a positive, diminishing relationship with CSR.
Theoretical Implications
We believe our research makes several contributions to both the CSR and information
technology literature. First, it is widely recognized that firm behavior is partially a function of
the institutional environment it operates in (e.g. Scott, 1995). Following in this vein, authors
have noted that firms face pressure from both market and non-market forces which constrain and
influence firm behavior (Greenwood, Díaz, Li, & Lorente, 2010). In addition to pursuing
financial objectives, firms must take heed of expectations from external stakeholders and be
cognizant of the socio-normative environment. In recent years this logic has been offered as an
explanation for seemingly fiscally irrational CSR oriented activities. To become legitimated,
firms must adhere to expectations of ethical and socially responsible behavior and divergence
from these minimally accepted standards exposes firms to risk. In building the institutional
argument for CSR, authors such as Campbell (2006), theorize that CSR pressures may be derived
from a variety of sources, yet, the specific role of public discretion remains and unarticulated.
Building upon these sources, our research fills that gap by demonstrating that discretion, or more
simply free institutions, has a positive effect of firm-level provision of CSR. This provides
insight regarding how socially responsible behaviors become institutionalized.
This research also contributes to stakeholder theory. A key challenge in the application of
stakeholder theory is the identification of who and what constitutes a legitimate stakeholder
(Phillips, 2003). Narrow views of stakeholder theory (e.g. Clarkson, 1995) define legitimate
stakeholders as those connected financially to firm operations. While useful from a managerial
32
perspective, it neglects the influence that secondary stakeholders (i.e., government and
communities) have in shaping firm actions. Excessively broad definitions of legitimate
stakeholders have been criticized for their lack of structure and usefulness for informing
managerial action. These views has been somewhat reconciled by introducing the concept of
secondary stakeholders to define the broader institutional environment, but the inherent difficulty
of assessing the limits of what constitutes a secondary stakeholder still remains. This research
utilizes the preceding model of stakeholder salience as a partial function of power and legitimacy
and argues that as a nation trends towards greater freedom and public discretion, power and
legitimacy is essentially transferred to the public at large. By virtue of the public’s ability to
shape the governing institutions, they can place pressure on firms to conform to widely-held
social norms. Based on the assertion that firms should only account for those stakeholders who
hold sufficient legitimacy, this research demonstrates that firms should be mindful of the
perceptions of the broad society, thereby expanding and further defining broader
conceptualizations of stakeholder theory.
Additionally, this research contributes to the information technology literature by
highlighting the role IT plays regarding CSR. Detailed research has covered both the economic
and social impact of digital communication (Mansell & Wehn, 1998), yet surprisingly, little
research has explicitly investigated the link between country-level usage of IT and firm CSR. In
the paper we draw from both established literature and anecdotal examples that highlight ITs
function as both a monitoring mechanism and a tool for collaboration. For example, behavioral
norms are selected for and enforced through a series of societal rewards and punishments
(Jepperson, 1991). Firms which adhere to institutionalized expectations of behavior are rewarded
with legitimacy while firms that violate those expectations “do so at their own peril” (Ashforth &
33
Gibbs, 1990 p.117). Legitimacy is a construct denoting action, as it is through patronage and
support that consumers legitimize a firm. Consumer values are motivational constructs,
influencing action (Verplanken & Holland, 2002). Therefore, firm’s whose behavior is judged as
appropriate vs. inappropriate and ethical vs. unethical will align with consumer’s expectations of
proper behavior and encourage the conference of legitimacy. But the perception of firm behavior
is not a static quality as consumers are continuously acquiring new information and adjusting
their cognitive models of a firm’s legitimacy. Thus, it is first the transfer of behavioral
information that must occur before judgments of fitness and legitimacy can be made. This
explains why more visible firms trend toward more responsible behavior (Chiu & Sharfman,
2011), as knowledge pertaining to an organization is more easily acquired subsequently
increasing the risk of negative valuation resulting from operational missteps. Since information
technology is inherently a tool of communication, firms in countries with greater degrees of IT
use are more visible, more easily monitored, and therefore face greater pressure to conform to
acceptable levels of social responsibility.
Information technology not only facilitates the dissemination of information, but
enhances a stakeholder’s ability to collaborate. Through collaboration, a digitally enabled society
can more easily rally for and coordinate against firms it deems to be acceptable and
unacceptable. In essence, the infrastructure for coordination allows for the deliberate action
which predicates institutional change (Boisot & Child, 1988). In sum, the linking of monitoring
and collaboration increases stakeholder salience by transferring power to the consumer and
influencing the positive uptake of socially responsible firm initiatives.
34
Limitations and future research
The preceding paper represents a broad exploration of the effects of public discretion and
information technology on CSR. As such, we are aware of some limitations of the paper and
opportunities for future research.
For the purposes of our analysis we depict firms as clustered within nations in order to
ascertain the effect of country-level variables on CSR. This implicitly assumes that the firms in
our sample have relatively strong ties to their domestic markets. As IT enables communication, it
also enhances globalization resulting in truly transnational firms spanning international
boundaries with less reliance on domestic markets. As firms become more global they may be
less subject to the pressures of society’s stakeholders. As it is outside the scope of the current
paper, future research could investigate the effect of internationalization in tempering the
normative influence of individual nations.
In alignment with the broad perspective of the paper, we adopt a general measure of IT
use. While this aids the analysis in terms of simplicity, it does not account for how IT is actually
used. A greater prevalence of social networking, for example, may influence stakeholder
collaboration and responsiveness to corporate activities. Future research could investigate
specific forms of IT use and their relationship with CSR. Both qualitative and longitudinal
designs would be useful for determining if the changing nature of information technology usage
changes, bolsters, or negates CSR pressures.
35
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47
CHAPTER TWO
PAPER TWO
CORPORATE SOCIAL RESPONSIBILITY INITIATIVES REDUCE NEGATIVE
REACTIONS TO SERVICE FAILURES AMONG VALUE-ALIGNED CUSTOMERS
ABSTRACT
A significant amount of research regarding corporate social responsibility (CSR) has
focused on both macro-level and consumer-level outcomes of firm social performance. However,
little research has investigated whether CSR can buffer firms against negative outcomes
following an adverse event (e.g., a service failure). The current paper addresses that gap through
two studies exploring if CSR activities shield against the negative effects of service failures.
Study 1 shows that consumers are less likely to spread negative word of mouth following a
product failure when a firm engages in environmental CSR, but only when consumers are also
high in trait environmental concern (TEC) and that this effect is mediated by consumer anger.
Study 2 and demonstrates that perceived value overlap reduces consumer anger which in turn
reduces NWOM within a service failure context. Perceived value overlap is greater among
consumers when a firm distributes charitable donations to causes selected by the consumers. The
major managerial implications derived from the findings is that, following service failures, CSR
activities reduce the propensity to engage in NWOM when value alignment is high and a flexible
CSR policy which donates to charities based on consumer choice may encourage feelings of
value-alignment.
48
INTRODUCTION
CSR, broadly defined, refers to a set of “actions that appear to further some social good,
beyond the interests of the firm and that which is required by law,” (Carroll 1999). Given that an
increasing number of consumers believe firms have higher-order ethical obligations (Narwal and
Sharma 2008), it is no surprise that firm-level social involvement has grown considerably in the
last decade. For example, in 2010, the United Nations Global Compact CEO survey reported that
93% of CEOs believe that sustainability issues will be an important factor for future success
(Lacy et al. 2010). Moreover, in its annual report, the Giving USA Foundation estimated that in
2011, corporations contributed $15.29 billion worth of cash and products towards philanthropic
activities, compared to $10.86 billion in 1999 (Giving USA 2011). Furthermore, sourcing from
ethical producers such as Fair Trade Coffee has substantially increased over the past decade (Fair
Trade USA 2010). This increased corporate attention toward altruistic activities is punctuated by
the rise of CSR reporting frameworks. The Global Reporting Initiative and the Dow Jones
Sustainability Index, for instance, now provide consumers and socially-conscious investors
accessible tools with which to evaluate companies on CSR dimensions.
Given the proliferation of company-level CSR initiatives, many researchers have sought
to understand CSR’s effects on consumer behavior. Surveys have shown that a majority of
consumers feel companies should behave in socially responsible ways (Burson-Marsteller 2010).
As a consequence, firms that engage in CSR activities experience benefits such as a positive
impact on consumer preference for a particular brand (Barone et al. 2000), willingness to pay a
premium for responsibly sourced goods (Arnot et al. 2006), and positive indirect effects on sales
due to better brand evaluations (Creyer 1997).
49
Despite the progress research has made in articulating the impact of CSR initiatives on
consumer behavior, the preponderance of studies to date have remained focused on pre-
transaction behaviors such as firm evaluations and brand preference (Barone et al. 2000; Vaaland
et al. 2008). The literature has largely neglected CSR’s effect on undesirable situations, post
transaction, such as consumer reactions to service failures. To address this gap, the present paper
hypothesizes that, following a service failure, CSR will attenuate feelings of anger thereby
reducing the desire to spread negative-word-of-mouth (NWOM) and this effect will be strongest
among value aligned customers.
Service failures occur when the purchased product/service “falls short of expectations”
(Somasundaram 1993). For instance, a newly purchased appliance may break down, laundry
detergent may fail to meet consumer expectations of efficacy or poor service may be rendered by
restaurant wait-staff. Research has all but concluded that product and service failures have
strong potential for engendering negative consumer responses such as an increase in anger
(Folkes et al. 1987), a desire to exact revenge in some fashion (Zourrig et al. 2009), such as
through consumer complaining and spreading negative word-of-mouth (Curren and Folkes
1987), dissatisfaction (Bitner et al. 1990) and switching behavior (Keaveney 1995; Manrai and
Manrai 2007). Compounding this problem, the heterogeneous nature of quality control and
production systems means that product failures are all but an inevitable consequence of daily
operations (Folkes 1984). Further, it has been shown that consumers rely heavily on anecdotal
recommendations by other consumers when selecting products (Senecal and Nantel 2004), a
process exacerbated by social media and online rating websites which allow for the near
instantaneous spread of negative information (Kaplan and Haenlein 2010).
50
Recognizing the severe outcomes of failure events, marketing scholars have investigated
methods through which negative consumer reactions can be mitigated following a failure. Palmer
et al. (2000) use equity theory and show that satisfaction following failure is a function of the
severity of the failure and the intensity of the recovery effort. Other researchers apply justice
theory and show that consumers respond positively to perceptions of interactional and
distributive justice (Davidow 2003), with other authors demonstrating the effect of emotions
(Bougie et al. 2003) and demographic variables such as age and gender (Brown 2004; Cota-
McKinley et al. 2001) on negative behavior. Apart from explicit activities a firm may perform
following failure, research has shown that implicit firm characteristics may help assuage
negative consumer reactions. For example, Hess Jr et al. (2003) used a service failure in a
restaurant context to demonstrate that firm reputation acts to buffer negative consumer responses
to both mild and severe failures.
While past research has offered valuable insights into the benefits of CSR, few studies
have directly investigated the impact of CSR in a failure context. A promising avenue of research
(e.g. Godfrey 2005; Peloza 2005) proposes an insurance view of CSR, stating that the goodwill
generated by corporate philanthropy will act as a form of insurance, ameliorating the negative
impacts of stigmatizing events (Godfrey 2005; Peloza 2005), such as countering negative
publicity during a crisis (Vanhamme and Grobben 2009). For example, Klein and Dawar (2004)
investigated how CSR influences consumer reactions during a product-harm crisis, specifically
using a product recall scenario as the experimental context. Klein and Dawar’s research provided
evidence that CSR efforts may enhance perceptions of non-related brand characteristics and thus
mitigate a portion of the negative outcomes experienced during the crisis. Apart from the idea of
preserving brand value, previous studies have neglected to consider how CSR may alter
51
consumer reactions following a product or service failure. The present study aims to fill that gap,
adding to both the marketing and CSR literatures by addressing CSR’s effects during failure
scenarios.
BACKGROUND AND HYPOTHESES
Corporate Social Responsibility
The concept of CSR originated from early works suggesting that firms have an obligation
to society above and beyond the profit motive (Bowen 1953). Modern definitions describe CSR
as activities which extend past base-level legal and ethical institutional requirements (Carroll
1999). Using this as a framework, CSR typically manifests in a variety of activities such as
philanthropic donations, progressive workplace practices, and pro-environmental initiatives.
While some scholars assert that firms provide social benefits because of ingrained
altruistic motivations (Baron 2001), others contend that the highly competitive business
landscape necessitates a strategic use of CSR for differentiation and stakeholder management
(e.g. Harrison et al. 2010; McWilliams et al. 2006). This is evidenced by the increasing number
of companies turning to the use of cause-related marketing (CRM), or the strategic linkage
between promotion and social causes (Bronn and Vrioni 2001). Typically, CRM campaigns
involve donating a percentage of profits or product sales to an attached non-profit (Mullen 1997).
An example would be the well-known Yoplait campaign, in which General Mills pledges to
donate $.10 per product sold to breast cancer research (Nan and Heo 2007).
The result is both a dual-positive outcome for both the non-profit and the firm. The non-
profit receives additional support from corporate donations and the firm increases its brand
reputation and generates additional sales from consumer desire to support socially-oriented
52
campaigns. In this sense, corporate philanthropy becomes an exchange relationship (Murray and
Vogel 1997). A firm performs philanthropic activities with the hope that consumers will reward
the firm with additional sales. Since positive consumer outcomes, in this instance, represent the
terminal goal of CSR, an understanding of the link between CSR activities and firm value
requires an understanding of both the cognitive and behavioral consumer responses to CSR.
Consumer Reactions to Corporate Social Responsibility
Macro-level researchers have sought to uncover a connection between CSR activities and
firm performance, the results of which have been largely equivocal (Orlitzky et al. 2003). The
lack of a clear positive impact on firm performance has pushed some authors to question the
business case for engaging in CSR (Friedman 1970; Henderson 2001). It may be the case, as
Murray and Vogel (1997) suggest, that CSR has few short-term financial benefits, but instead
has a longer term impact on intangibles such as corporate goodwill or consumer relationships.
Underscoring this, more recent research has turned to the consumer level when investigating the
CSR-performance link. For example, Luo and Bhattacharya (2006) found that market value was
partially predicted by customer satisfaction which in turn was affected by firm CSR activities.
Another study concluded that purchasers of Fair Trade coffee are less price elastic, suggesting
that consumers derive value from firm social activities (Arnot et al. 2006).
The preceding research highlights how CSR can augment the firm-consumer exchange
relationship. More specifically, CSR may affect the attitudes and perceptions a consumer has
regarding the target firm. When consumers engage in transactions with a particular brand, they
automatically form attributions with respect to the brand’s perceived quality, value, and
character. Thus, the quality of a firm’s brand is a cognitive construct made through the linkage
53
of various attributes in the mind of a firm’s consumers (Hoeffler and Keller 2002). On one hand,
brand evaluations are created by consumers through judgments about services on specific
dimensions such as product performance. On the other hand, brand evaluations regarding
specific attributes may be influenced by evaluations of separate attributes. Klein (2004) and other
authors refer to the transfer of positive brand evaluations to other characteristics as the “halo-
effect.” For example, positive perceptions regarding characteristics in one area such as service
quality may implicitly lead to more positive evaluations of a service in terms of reliability.
This effect is not restricted to attributions strictly at the product and service level.
Researchers have established that unrelated positive firm characteristics, such as perceptions of a
firm in relation to expected societal contributions, alter the perception of a brand (Brown and
Dacin 1997). This is consistent with the assertion from Varadarajan and Menon (1988) who
state that firms engage in philanthropic activities with an implicit goal of projecting a brand
image that is favorable to their consumers. In the context of the market, a firm or brand is
deemed either good or bad, in part, by an overall evaluation of its ethical conduct (Folkes and
Kamins 1999). Thus, by engaging in CSR, a firm attempts to project a positive brand image by
demonstrating that it is both concerned with and responsive to the needs of society (Ellen, Mohr,
Webb 2001). This is supported by previous findings that CSR information led to higher firm and
brand evaluations during normal operations (Marin and Ruiz 2007; Sen and Bhattacharya 2001)
and after a product-harm crisis (Klein and Dawar 2004).
At the behavioral level, CSR activities were found to have an indirect effect on customer
loyalty (Salmones et al. 2005). Patrons of firms engaging in CSR initiatives tended to rate the
firm’s services more favorably which in turn enhanced loyalty to the firm. In addition, Murray
and Vogel (1997) showed that customers were more likely to recommend a job application to a
54
friend if they were exposed to information regarding the firm’s CSR activities. In another vein,
CSR activities relating to support for non-profits and adherence to ethical codes increased
emotional attachment to and purchases from a firm (Lichtenstein et al. 2004).
While a considerable amount of literature has been focused on positive, action-oriented
behaviors such as brand selection (Peloza and Shang 2011), another stream of research suggests
that CSR serves as a buffering mechanism against unwanted outcomes. Godfrey (2005) proposed
that firms which engage in philanthropic activities accrue a form of “moral capital” which
becomes attached to the brand’s overall global reputation and functions as a form of relational
wealth. After a negative event, consumers evaluate the negative intentions behind the act and
“stakeholders invoke [a] cognitive template... to help determine appropriate sanctions” (Godfrey
2005). Under the insurance view, moral capital acts as a positive reservoir of goodwill and
provides evidence that the firm has acted positively on the customers’ behalf (Godfrey 2005). In
line with this reasoning, Eisingerich et al. (2011) found that firm CSR caused consumers to be
more resistant to negative information regarding the firm. However, this effect was diminished
when consumers had greater levels of prior experience with the service provider. Thus, when a
negative event occurs, a socially committed firm can be partially protected from value loss. In
the present study, we argue that this protection will manifest itself in the form of reduced
negative consumer responses following and service failure. To test this argument, we use
revenge seeking behavior in the form of spreading negative word of mouth (NWOM). Formally,
we hypothesize:
H1: Consumers will be less likely to spread negative word of mouth following a
service failure when a firm engages in CSR.
55
Individual Values and CSR
The preceding arguments reference broad outcomes of firm social activities without
accounting for individual differences among consumers. While many studies note a net benefit
from CSR across aggregate respondents, previous research suggests that CSR activities may be
more likely to have a beneficial effect if they match a consumer’s values (Golob et al. 2008).
Since personal values are individual beliefs about what is desirable (Hitlin and Piliavin 2004)
and mental representations of underlying needs (Lai 1995), consumers may be driven to support
efforts by corporations that, by extension, are in alignment with their underlying value
framework (Basil and Weber 2006; Siltaoja 2006). Sen and Bhattacharya (2001) detail a model
of organizational identity to account for this effect. As individuals interact with organizations
they become informed about the characteristics of an organization’s identity and values and may
even incorporate elements of a firm’s identity into their own self-identity for consistency.
Consumers who have a larger degree of support for the specific CSR area a firm is committed to
may perceive a greater degree of alignment between themselves and the firm. Efforts to maintain
a consistent self-image could then lead consumers to select and support organizations with the
highest degrees of perceived value congruence.
As evidenced in Sen and Bhattacharya (2001), the effect of CSR information on firm
evaluation was most salient among consumers who had stronger personal values regarding CSR.
Similarly, products with attached pro-social attributes such as animal welfare were deemed more
desirable by consumers who were more concerned with ethical issues (Shaw et al. 2005), and
subjects with higher support for a CSR domain reported higher levels of purchase intent (Mohr
and Webb 2005).
56
With regards to the present study, we expect a reduction in the revenge seeking behavior
of NWOM to be most likely among consumers whose value systems reflect a high level of
alignment with respect to the CSR initiative identified. Thus we arrive at the following
hypothesis:
H2: CSR activities and environmental concern will interact such that, following a
service failure, (environmental) CSR activities will lead to the largest reduction in
NWOM among consumers who score high on trait environmental concern.
Anger as a Mediating Process
Assuming the predicted interaction is observed, it raises the question, what
psychological mechanism might mediate the value-aligned customers’ reduced NWOM
in response to CSR? One likely candidate is reduced anger. This follows from cognitive
dissonance theory (Festinger 1957) which assumes people have a need to maintain
consistency between their various cognitions, and between their cognitions and behavior.
When either of these are in conflict, such as when there is a discrepancy between closely-
held values and behaviors, people experience negative affective states such as
nervousness, discomfort, uneasiness (Harmon-Jones 2000a) and anger (Harmon-Jones
2000b). For instance, when a consumer purchases a service, he or she has already
formulated some degree of expectations for performance and quality (Yi and La 2004). If
the purchased goods do not meet expectations, consumers may experience negative
affective states, because their behavior (buying the service) is inconsistent with their
(negative) evaluation of the service, producing dissonance (Buttle 1998).
57
More relevant to the current paper, the intensity of the experienced negative
affective state in response to a service failure may be mitigated depending on the value
overlap between the consumer and the firm. For example, research shows that consumers
with high regard for a particular type of CSR activity develop a greater degree of trust
with a firm that purports to engage in a value-aligned CSR activity (Castaldo et al.
2009). Following this, Yi and La (2004) found that consumers who had more confidence
and trust in the integrity of the brand were more likely to define a failure as a temporary
occurrence thereby reducing cognitive dissonance and presumably anger. Therefore, we
expect that when consumers high in trait environmental concern experience a service
failure with a firm but are also informed that the firm engages in environmentally friendly
CSR activities, they are likely to feel dissonance if they attempt to hold both negative and
positive views of the firm simultaneously. Given that the more negative views may be
more transient, it seems likely that such consumers would prefer to maintain their
generally positive view of the firm that engages in valued CSR activities, resulting in a
reduction in anger.
When cognitive dissonance is experienced, it may lead an individual to adopt a
dissonance-reduction strategy in an effort to correct the contradictory mental state (Elliot
and Devine 1994). Given that a product or service failure may lead to the spread of
NWOM (Weun et al. 2004), authors have noted that this may be a result of a consumer’s
attempt to achieve consonance (Cheng et al. 2006; Lindberg-Repo 1999). When a
consumer vents frustrations through negative communication they are reducing
dissonance related anxiety. Thus, negative word of mouth is a terminal behavior which
manifests as the end result of a series of cognitive and emotional consumer processes
58
(Blodgett et al. 1993). Utilizing this model, we expect that consumers who are exposed to
a service failure will experience a negative affective state. In turn, we expect the intensity
of the affective state to affect the likelihood of engaging in NWOM. However, we also
expect that those high (but not low) in trait environmental concern will be less likely to
experience that anger when they learn a firm engages in CSR. Thus, the preceding
arguments lead to the following two hypotheses:
H3: CSR activities and environmental concern will interact such that, following a
service failure, (environmental) CSR activities will lead to the largest reduction in
anger among consumers who score high on trait environmental concern.
H3: Following service failure, anger will mediate the hypothesized interaction
between CSR and TEC.
OVERVIEW OF STUDIES
To test our hypotheses, we conducted two studies. In both studies, participants imagined
a service failure in a local coffee shop. This scenario was selected because restaurants and
similar environments have been prominently used in the service failure literature (e.g. Hess Jr
2008). In study 1, participants were exposed to one of three scenarios which manipulated the
percentage amount of profits that the coffee shop donates to charity. To test our key interaction
hypotheses, trait concern for the environment and anger were measured as a moderator.
In Study 2, we build upon the first study in two ways: First, we test the hypothesis that
CSR’s effect on anger and NWOM is driven by an underlying perception of value overlap.
Second, to add a practical component to our research, we test whether perceived value overlap is
influenced by the manner in which a firm distributes charitable donations. To do this we use two
59
conditions: a control condition where no CSR information is provided and an experimental
condition where the hypothetical coffee shop surveys customers and agrees to disperse charitable
donations based on consumer CSR preferences.
STUDY 1
Method
Participants were drawn from upper division business courses at a large state university
in the western U.S. (N = 142) and Amazon’s MTurk service (N = 198), resulting in a final
sample of 340 (45.3% male, 83.5% Caucasian, median age = 30). In exchange for participating,
students were entered into a drawing for one of three $10 gift cards and online participants were
paid $1 for completing the survey.
MTurk is a crowd-sourced labor market where individuals and organizations can post
jobs (referred to as Hits) which individual workers complete and submit electronically.
Preliminary research has demonstrated that participants sourced from Mturk exhibit very similar
behavior and decision processes compared to more traditional participant pools (Buhrmester et
al. 2011; Paolacci et al. 2010). We restricted participant to individuals in the United States, as
prior studies have determined that expectations of CSR may vary across countries (e.g. Matten
and Moon 2008), and cross-country effects are outside the scope of this paper.
All participants were asked to read a purchasing scenario involving a local coffee shop
and were then given additional information based on one of three conditions. In the low and
high CSR conditions, participants were told the café donates either 2% or 15% of its profits to
charitable causes respectively. The control condition received no information beyond the initial
60
purchase description. Following this, all participants were exposed to a service failure including
an inordinately long wait time and an incorrect drink order. After the presentation of information,
participants were asked a series of questions relating to their perceptions of the store’s
commitment to the environment, their feelings of anger (α = .89) and desire to engage in
negative word of mouth (NWOM) (α = .94). All questions were measured using a 7-point likert
scale (see appendix B for a list of scale items). Next, participants completed the 16-item revised
New Environmental Paradigm scale (Dunlap et al. 2000). The revised NEP scale and its original
version have been widely used to measure people’s degree of pro-ecological orientation. Two
sample items include: “If things continue on their present course, we will soon experience a
major ecological catastrophe” and “Humans are severely abusing the environment.” The items
on the NEP were captured using a 5-point likert scale: 1 = strongly disagree, 5 = agree, (current
study α = .84).
Results
Manipulation check. To ascertain the effectiveness of our CSR manipulation, we asked
for participants’ perception of the firm’s commitment to the environment (Appendix B). A one-
way ANOVA indicated a significant effect of CSR condition on perceptions of environmental
commitment, F(2, 337) = 54.45, p < .001. Post-hoc comparisons using the Tukey’s Honestly
Significant Difference test revealed significant differences (p < .05) between the control (M =
3.99), low CSR (M = 4.83), and high CSR conditions (M = 5.60). This suggests that both the
provision of CSR information and the level of CSR activity influence consumers’ opinions
regarding a firm’s environmental commitment, thus providing evidence of the efficacy of our
manipulation.
61
NWOM as a function of TEC and CSR. To test H1 and H2, we conducted a two-step
multiple regression analysis. On step 1, we entered mean deviated TEC, and helmert contrast
codes to test for the effect of CSR (contrast 1 = control vs. CSR; contrast 2 = low vs. high levels
of CSR). On step 2, we entered the interaction terms between TEC and the two CSR contrast
codes. In the event of a significant interaction, we conducted simple slope analyses testing the
effect of the relevant CSR contrast at low (-1SD) and high (+1SD) levels of TEC. Results for the
global analysis are shown in Table 1. Preliminary regression analyses on NWOM and anger indicated
that sample (student vs. MTurk) did not have a main effect and did not enter into any higher order
interactions (p’s > .22). In addition, the conclusions reached in the text were not altered by entering
sample or its interactions in the models. Thus, we dropped sample from the model and focused on our
primary predictor variables (CSR contrasts, TEC and their interactions).
The results indicate no significant main effect of CSR on NWOM (i.e., neither of the
CSR contrast codes was significant). However, the interaction between TEC and the first CSR
contrast code (control vs. CSR) was significant. This interaction is shown in Figure 1. Follow-up
simple slope analyses were consistent with H2: CSR had no effect on NWOM at low levels of
TEC, t(319) = .76, p = .45, but reduced NWOM at high levels of TEC, t(319) = -1.94, p = .053.
As such, results supported our theorizing that CSR would only lead to a reduction in NWOM
when consumers held values consistent with the CSR effort. Results also suggest that the level of
CSR has no significant effect.
Note. N = 323. Coding for Con 1 (Control = -2, Low CSR = 1, High CSR = 1) and Con 2 (No CSR = 0, Low CSR = -1, High CSR = 1).
TEC = trait environmental concern. NWOM = negative word of mouth.
Table 2.1
Results of the Regression Analyses for Study 1
NWOM ANGER NWOM with Mediator
Step1 β t p β t p β t p
No CSR vs. CSR (Con 1) -0.04 -0.80 0.426 -0.18 -3.40 0.001 -0.04 -0.80 0.426
Low vs. High CSR (Con 2) 0.06 1.05 0.293 0.03 0.54 0.374 0.06 1.05 0.293
TECdev -0.27 -5.04 0.001 -0.15 -2.84 0.005 -0.27 -5.04 0.001
Step 2
Con1 X TEC -0.11 -1.99 0.048 -0.14 -2.54 0.012 -0.05 -0.96 0.338
Con2 X TEC -0.08 -1.41 0.158 -0.08 -1.47 0.143 -0.04 -0.77 0.443
Anger
0.54 11.12 0.001
Anger x TEC
-0.03 -0.57 0.570
62
63
Figure 2.1
NWOM as a function of CSR Condition and Trait Environmental Concern (Study 1)
Anger as a Mediator of the CSR x TEC Interaction. We also hypothesized that anger
would mediate the CSR x TEC interaction on NWOM. To test for this mediated moderation
effect, we employed the analytical technique suggested by Muller et al. (2005). According to
their guidelines, to establish mediated moderation, the treatment and moderator should produce a
significant interaction on both the primary dependent variable and the proposed mediator. Our
previous analysis demonstrated a significant CSR by TEC interaction on NWOM. To test
whether a similar pattern emerged on anger, we conducted the same two-step hierarchical
regression analysis treating anger as the dependent variable. On step 1, results for the first CSR
contrast revealed that CSR significantly reduced anger (relative to the control condition). More
importantly, on step 2, results revealed a significant CSR (contrast 1) x TEC interaction. As
shown in Figure 2 the pattern of this interaction replicated the pattern on NWOM. Consistent
with our earlier strategy, we next tested the simple effect of CSR at low and high levels of TEC.
64
Replicating our findings on NWOM, results revealed that CSR did not significantly reduce
NWOM among individuals low in TEC, t(321) = -.80, p = .43, but did significantly reduce
NWOM among those high in TEC, t(321) = -4.16, p < .001. In sum, results supported the
prediction that consumers experience less anger following a service failure when a firm engages
in CSR activities that the consumer values, and results met the first requirement for mediated
moderation specified by Muller and colleagues.
Next, following Muller et al. (2005), we evaluated whether the primary (CSR x TEC)
interaction on NWOM was reduced to non-significance once anger and the anger x TEC
interaction were entered into the model; according to Muller et al., at least one of the two latter
predictors must be significant in this model to establish mediated moderation. As can be seen in
Table 1, these conditions were met. The previously significant CSR x TEC interaction on
NWOM was no longer significant once anger and the anger x TEC interaction were entered into
the model, while anger (the presumed mediator) was significant in this analysis.
Figure 2
Anger as a Function of CSR Condition and Trait Environmental Concern
65
Discussion
We sought to test our hypotheses within a service failure context using a common failure
scenario. We found that consumers high in concern for the environment showed a significantly
reduced desire to spread NWOM after learning a firm engaged in (environmental) CSR
activities, whereas those low in TEC did not. We also tested whether the effect of CSR varied as
a function of the level of the CSR activity. Here, results indicated no significant effect for the
level of CSR. Further, we tested whether anger would mediate the TEC x CSR interaction.
Results from our mediated moderation analysis supported that hypothesis, providing support for
our assertion that the reduction in NWOM among value-aligned customers exposed to a firm’s
CSR activities is due to a reduction in anger following the service failure.
While the results from Study 1 are encouraging, from a practical perspective, the
application may be rather limited. The study utilizes a specific CSR area (the environment)
which in turn may only influence a narrow selection of consumers. Given the diversity of value
systems people may adopt, consumers may be more apt to respond to initiatives such as human
rights campaigns or contributions to healthcare research. To answer the question regarding what
a firm can do in order to maximize value alignment among a broader set of consumers, Study 2
introduces a scenario where consumers are asked about their CSR preferences and the firm
indicates it will donate money in proportion to the responses. The assumption is made that when
a firm expresses an intention to conform to its customer’s social preferences, it will engender
greater feelings of value-alignment. To test this assertion, Study 2 builds upon Study 1 by
directly measuring perceived value alignment in addition to anger and NWOM.
66
STUDY 2
Method
Participants recruited from MTurk participated in the brief survey in exchange for $1 (N
= 142; 79.6% Caucasian, 62% male, median age = 30). All participants read a core purchasing
scenario which varied based on one of two conditions. In the CSR condition, participants were
presented with a situation in which a local coffee shop surveyed customer with regards to their
preference for corporate charitable donations. Then the firm indicated it would donate 15% of
profits to charity with amounts distributed among charitable causes based on the survey results.
The control condition contained no additional information. Two distractor items were included
following the core scenario and CSR information to help mitigate any priming effects (see
Appendix C for scenario descriptions). Following the distractor items all participants were
exposed to a service failure where a drink order was prepared incorrectly and the wait time was
undesirably long. Participants then completed a 3-item perceived value overlap scale (alpha =
.78) which asked participants to rate the extent to which they felt the firm shares the values and
is concerned about the opinions of its customers, and to indicate graphically their perceived
value overlap by selecting among two circles of varying distances (Schubert and Otten 2002),
(note: item 3 was converted from an 8 to a 7 point scale prior to analysis for consistency).
Participants also completed the 3-item anger (alpha = .92), and 3-item negative word of mouth
scale (alpha = .95). Appendix B lists all scale items.
Results
67
A two-level ANOVA revealed a significant effect on perceived value overlap, F(1, 140)
= 40.27, p < .001, η2 = .223; anger, F(1, 140) = 31.74, p < .001, η2 = .185, and NWOM, F(1,
140) = 8.09, p < .01, η2 = .054. Figure 3 displays the resulting means for value overlap, anger
and NWOM for both the control and CSR groups. As can be seen in figure 3, perceived value
overlap was significantly higher and anger and NWOM were significantly lower in the CSR
survey condition.
Figure 3:
Variable means as a function of group (Study 2)
To further explore the data we fitted a structural equation model using AMOS 20 and
maximum likelihood estimation. The resulting indices show acceptable model fit (NFI = .945;
CFI = .975; RMSEA = .074) and all paths analyzed produced significant coefficients (p < .001).
As before, higher levels of anger were associated with a greater likelihood of engaging in
NWOM (standardized coefficient = .63). however, and in line with our theorizing, surveying
customers regarding their CSR preferences had a significant positive effect on perceived value
overlap (standardized coefficient = -.46) which in turn significantly reduced consumer anger
68
(standardized coefficient = -.46). In sum, surveying customers about their CSR preferences, and
allocating the firm’s CSR donations according to those preferences enhanced perceived value
overlap, reduced anger, and reduced NWOM as a result. The model is indicated graphically in
Figure 4.
Figure 4: Structural Equation Model for Study 2
Discussion
The results of Study 2 reinforce and expand upon the results of Study 1 in several ways.
To begin, we sought to test the broader effect of CSR by replacing the environmental CSR
context in Study 1 with a dynamic set of CSR activities where consumers were given the choice
in how charitable donations were spent. Our reasoning states that the reduction in NWOM is
driven by the resulting perception of congruence between a consumer’s and firm’s values.
Results support this conclusion given that when participants were afforded the choice of CSR
activities, perceived value overlap was significantly higher than in the non-CSR condition. In
turn, the reported level of anger following a service failure was significantly lower among
participants who indicated a greater level of value overlap. And, consistent with Study 1, we
found that consumers who reported greater levels of anger following a failure were in turn more
likely to engage in NWOM.
69
GENERAL DISCUSSION
Research Contribution
Previous research has not investigated the impact of CSR on consumer reactions
following service failures. To address this gap, we utilized two service failure scenarios to
determine how consumer behavior may be affected post-failure by firm-level CSR activities.
The findings lend support for and extend the insurance view of CSR (Godfrey 2005).
While previous research has indicated that, in some cases, CSR creates protection against
financial loss following a negative event (Hess Jr et al. 2003; Klein and Dawar 2004), the
consumer-level mechanisms that account for this effect are relatively unexplored. To account for
this, we offer a reduction in negative consumer reactions following failure as a potential
explanation. Both studies provide evidence that, following failure, consumers expressed a lower
desire to spread NWOM when a firm engaged in CSR. However, an important caveat is that the
reduction occurred only among those who perceived a higher level of value-overlap between
themselves and the firm. This was accounted for indirectly in Study 1 by pairing environmental
values with an environmentally focused firm activity, and manipulated directly in Study 2 via a
questionnaire.
Our research goes beyond the generic argument that CSR acts as insurance against failure
by helping a firm to first develop a reservoir of goodwill and a superior corporate reputation.
Instead, our research clarifies the insurance view by asking among whom do these particular
70
benefits accrue? Since consumers are characterized by a variety of values, it is intuitive to
assume that not all consumers will respond to CSR in the same manner. While some may be
particularly sensitive to concerns such as the environment, others may be more heavily
influenced by contributions to education or healthcare. Therefore, insurance against failure
among one segment of the population may not transfer equally to another segment and vice
versa. This positions CSR less as a general action meant to appeal to a broad population and
more as a targeted activity done in accordance with the value systems of a firm’s particular
consumers. This reasoning may also provide insight as to why many previous studies have
produced contradictory results when investigating whether CSR produces an effect on financial
returns (Orlitzky et al. 2003). Given the heterogeneous characteristics of a population, it may be
difficult or perhaps impossible to produce a measure that accurately captures the effects of CSR
at an aggregate level.
Managerial Implications
The current results have two distinct implications for management. First, while the return
on investment for engaging in CSR activities is not always clear (Orlitzky et al. 2003), our
research shows that CSR can provide an insurance effect in certain instances. Given that the
heterogeneous nature of service delivery makes failure all but inevitable (Folkes 1984), this
research becomes especially pertinent for firms wishing to mitigate deleterious effects of failure.
Study 1 indicates that even modest spending (2% of profits) on CSR can provide an
insurance against NWOM the case of service failure. This is particularly salient in the U.S. and
in other developed countries where services are becoming a greater portion of the overall
economic activity.
71
Secondly, while organizations might use social donations in an attempt to influence the
greatest amount of consumers, the difficulty lies in determining the underlying values of a
specific group of customers. For example, it may be that some customers will react favorably to
a company that contributes money to help wounded veterans or help promote cancer awareness,
while others might prefer money contributed towards the environment. Given the multitude of
values in a population, it may be difficult to craft a single CSR activity which is appealing to a
majority of consumers.
To address this challenge, Study 2 builds on Study 1 by showing that it may be possible
to promote greater perceived value alignment by building flexibility into CSR policies (I.E.,
basing allocations on customers’ stated preferences). Consider the donation structure instituted
by ableBanking, an online financial firm. It pledges to donate $25 to charity for each new
account opened and consumers can select the donation recipient. This builds flexibility into its
CSR program and, can encourage ‘collective giving’ where multiple supporters of a single
charity may be attracted to the firm in order to maximize the donations that charity receives.
With regards to the present study, surveying consumers about CSR preferences and donating in
proportion to the survey results directly increased feelings of value overlap which in turn reduced
the intention to engage in NWOM. These results suggest that organizations should craft social
policies which promote the greatest feelings of value alignment. This research indicates a choice-
based method of charitable donations may be a valuable tool in achieving this end.
72
Limitations and Future Directions
We recognize that the current work is not without limitations and we believe there are
many future avenues for research concerning CSR spending and its insurance effect and which
would yield valuable theoretical and practical implications.
Both studies focused on a common but arguably innocuous service failure where a
participant’s drink order was delayed and incorrect. It may be the case that the cost of the service
and the severity of the failure will have an effect on consumer reactions. A failure with an
expensive service would most likely be more than a temporary annoyance and therefore may not
enjoy the same kind of insurance against NWOM. For example, an airline leaving a customer
stranded for multiple days may generate NWOM despite the airline spending a significant
amount on CSR. In this case an airline ticket represents a greater financial commitment on behalf
of the consumer and the failure is particularly egregious. Future research could investigate the
insurance value of CSR with services across multiple price points.
For model simplicity, participants in both studies were restricted to residents of the
United States. Since CSR is not an objective phenomenon but rather a subjective interpretation
of how a business should interact with society, country-level variables may serve to augment the
effects detailed in this paper. A rich body of knowledge is being developed which underscores
factors such as national legacies and system of government that alter what people perceive to be
73
CSR (Gjølberg 2009). Future studies could replicate this research across multiple populations in
order to test its robustness to cultural and institutional effects.
This paper also does not account for competitor characteristics with regards to CSR. For
example, if a similar firm exhibits comparable CSR spending, the effects of CSR might be less
pronounced. Further, as CSR spending in an industry becomes commonplace consumers may
develop an expectation for firm social involvement. In this environment, CSR would cease
being a value added experience and instead become simply a cost of doing business thereby
nullifying any insurance benefits CSR might provide. Alternatively, if close competitors or an
industry do not exhibit similar CSR spending, the insurance effect of CSR spending for the focal
organization may be even more pronounced. Future models could include competitive intensity
and industry characteristics in order to ascertain their effects on service failures.
74
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CHAPTER THREE
PAPER THREE
The Best of Both Worlds: The role of financial returns in social opportunity selection
Abstract
Intrinsic to entrepreneurship is the evaluation and selection of opportunities. Yet, in the
realm of social entrepreneurship little is known about this process beyond the conceptual level.
On one hand, social entrepreneurs may be driven to select opportunities based upon perceptions
of future social value generation while on the other hand, pragmatic concerns of financial
viability may lead social entrepreneurs to pursue more commercially oriented ventures. This
paper investigates how social entrepreneurs value these two factors when selecting a particular
opportunity to pursue. Utilizing a conjoint methodology this paper finds three attributes of social
opportunities which significantly influence potential opportunity ratings; namely, proximity,
pervasiveness, and impact. A significant interaction between financial returns and pervasiveness
but not proximity and impact suggests SEs are conscious of economic concerns and will select
opportunities that satisfy both conditions but only in certain instances. The paper concludes that
the relationship between social and financial value creation is more complex than previously
thought. Implications and future directions for research are discussed.
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INTRODUCTION
Social Entrepreneurship, or entrepreneurial activities with prominent social goals, has
generated considerable scholarly interest in recent years (Dacin, Dacin, & Matear, 2010). Like
their commercial counterparts, social entrepreneurs identify untapped opportunities and marshal
resources (many times outside of their current resource stocks) to exploit these opportunities.
Unlike commercial entrepreneurship which is concerned with opportunities resulting from
“situations in which new goods, services, raw materials, markets and organizing methods can be
introduced through the formation of new means, ends or means-ends relationships” (Eckhardt &
Shane, 2003, p. 57), and whose focus is primarily on monetary returns, social entrepreneurs
innovate and establish business models to correct social issues (Seelos & Mair, 2005) such as
hunger, poverty, and inadequate access to healthcare. To the social entrepreneur, an opportunity
is a chance to create social rather than economic value.
Implicit in the opportunity exploitation process is the notion that an entrepreneur must first
decide (among a pool of available options) which opportunity to exploit. Much research has been
conducted in the commercial realm to uncover attributes of opportunities which are favorable
and lend themselves to pursuit by entrepreneurs (e.g.Choi & Shepherd, 2004; Shane &
Venkataraman, 2000a). However, research is still largely unaware of the aspects of social
opportunities which encourage exploitation by SEs.
In another sense, an opportunity is composed of various characteristics (I.E. the number of
potential customers to be served, individual knowledge of the area etc.), and it is the mixture of
these attributes that lend it to being identified as viable. The influence of opportunity attributes
on entrepreneurial processes is an important point to consider. Specifically, the decision to
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pursue opportunity ‘A’ over opportunity ‘B’ has been argued to be a critical element in our
understanding of entrepreneurship (Choi & Shepherd, 2004). However, research has concluded
that, by their very nature, value generating opportunities are rare, and the ability to identify them
is, by itself, a valuable resource (Alvarez & Busenitz, 2001). Such is not the case in social
entrepreneurship. Social opportunities are abundant and ‘often far outstrip the resources available
to address them’ (Austin, Stevenson, & Wei Skillern, 2006, p. 7). This paper argues that due to
the plethora of social issues, the crux of social entrepreneurship is not on the identification
process but rather on the selection process. Thus, understanding how SEs select rather than
identify viable opportunities is paramount to advancing our understanding of social
entrepreneurship.
Specifically, this paper focuses on how SEs weight both social and economic concerns when
selecting which opportunities to pursue. While researchers accept the notion that financial
returns are a necessary component to social entrepreneurship, others portray social entrepreneurs
in a more idealized light. To them, social entrepreneurs are agents of change, driven by bold
visions (Dees, 1998), forged with “unshakable optimism”(Light, 2009), to whom financial
returns are only a “means to an end” (Dees, 1998). These conceptualizations are not necessarily
incorrect as many typologies of SEs contain an underlying value-driven component to varying
degrees (Dorado, 2006; Thompson, Alvy, & Lees, 2000). However, these conceptualizations
may serve to bias research towards a more “heroic” interpretation of the social entrepreneur
(Dacin, Dacin, & Tracey, 2011). Indeed, some interpretations place the phenomenon squarely in
the not-for-profit realm, distinguished only from other NGOs by their application of commercial
business practices (Reis, Clohesy, & WK Kellogg Foundation, 1999).
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Biased characterizations such as this are troubling because they serve to marginalize the role
that economic gains play in the social entrepreneurship process. The result, as Dacin (2011)
argues, is a bias when studying the potential motivation and missions of individual SEs. It forces
researchers to adopt the notion that social entrepreneurs are largely altruistic, unfettered by
monetary concerns (Roberts & Woods, 2005). We know that this is not the case. Heterogeneity
exists among individuals resulting in various levels of commitment and zeal towards bringing
about social change (Tan, Williams, & Tan, 2005); the result being that, while SEs may work to
engender social improvements in their communities and abroad, not all may have the same
attitude towards economic gains.
This potential marginalization of financial objectives interferes with researchers’ abilities to
draw meaningful comparisons among SEs based on individual differences. Further still, it may
reduce our capacity to determine what characteristics of a social externality lead it to be
recognized as a viable opportunity by a social entrepreneur; an important point to consider being
that the recognition and exploitation of untapped opportunities rests as the cornerstone of
entrepreneurship research (Venkataraman, 1997).
This paper has a number of objectives. First, it seeks to determine to what extent are these
heroic conceptions of social entrepreneurs accurate. Do social entrepreneurs push forward and
attempt to correct social injustices while eschewing the profit motive? Or are they more
pragmatic and strike a distinct balance between the two forms of wealth creation. Empirical
research is largely silent in this area. While the role of financial returns has been theorized in a
host of conceptual articles (e.g.Mair & Marti, 2006; Mort, Weerawardena, & Carnegie, 2003),
the effect of potential financial returns on social entrepreneurial decision processes has yet to be
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formally tested. To explore these areas, the paper pulls from recent literature and utilizes a
conjoint analytic methodology to test the importance of three key social opportunity attributes:
specifically, proximity, pervasiveness, and impact. Potential financial returns are included to
assess how returns are weighted alongside social characteristics.
The rest of the paper is organized as follows: a brief review of social entrepreneurship is
conducted in order to provide necessary background information. Next, potential attributes of
social opportunities are proposed which would lend them to being considered attractive to SEs;
from these attributes specific hypotheses are developed. Finally, a conjoint analysis is conducted
as a method for uncovering a SE’s decision criteria. The paper concludes with a discussion of the
research design and potential future research.
OVERVIEW
Conceptualizations of social entrepreneurship range from broad to narrow. In the former
category, SE is defined as innovative, social value creating activities that can occur within or
across the non-profit, business, or government sectors (Dees, 1998). Narrower definitions place it
within the realm of corporate entrepreneurship with the social mission being attached to a
broader strategy (Mort, et al., 2003).
Although creating an exact definitional construct of social entrepreneur is still somewhat
problematic (Peredo & McLean, 2006), some consistent themes have been developed. For
example, social entrepreneurship has been studied as a way for dealing with complex social
needs (Johnson, 2000). It is a method with which entrepreneurs deliver community services by
applying for-profit techniques (Peredo & McLean, 2006), and in cases where the business is run
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as a for-profit enterprise, economic considerations are subsumed by the social goal (Dees, 1998).
Further conceptualizations by Peredo (2006) describe social entrepreneurship along a continuum
with one extreme occupied by non-profit organizations whose goals are entirely social. At this
end, the organization operates with the express purpose of enacting social change and does not
engage in profit seeking behavior. The middle of the continuum is occupied by firms operating
with a dual focus. An example is Ben and Jerry’s, a confectioner with a strong commitment to
social initiatives and also to more traditional economic viability (Stephens, 2003). Finally, at the
other extreme are businesses which chiefly engage in commercial exchanges but social causes
play a material part in organizational operations. However, in most instances a social
entrepreneurial firm acts with a dual identity (Moss, Short, Payne, & Lumpkin, 2010),
concentrating on delivering both social and economic value. Thus, it is the mission of the social
entrepreneurial enterprise that serves as its defining characteristic (Austin, et al., 2006).
Many similarities exist between social and commercial entrepreneurship (Austin, et al.,
2006), leading some to describe SEs as ‘one genus of the species entrepreneur’ (Dees, 1998).
Traditional entrepreneurship is classically studied as a linking of opportunities with individuals
(Stephens, 2003). Studies have focused on the discovery of novel, untapped opportunities (Shane
& Venkataraman, 2000b), and the mobilization and organization of resources to exploit these
opportunities in the hope of creating economic value. More myopic definitions typically focus on
starting and running a small business. While technically correct, however, entrepreneurship as an
academic field more importantly encompasses any undertaking in which the entrepreneur usually
has to shoulder a certain degree of risk and make profits in the face of that risk (Tan, Williams,
Tan, Economics, & Sciences, 2003). The same characteristics apply to social entrepreneurship in
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that an emerging social entrepreneur has recognized a failure or inefficiency in the market to
provide a sought after social product (Austin, et al., 2006) and then organizes the resources and
capabilities necessary to exploit that opportunity, while opening themselves up to the risk of loss.
While there are many similarities in processes, the nature of social opportunities is
different. Social entrepreneurs follow similar patterns of opportunity recognition and exploitation
(Corner & Ho, 2010), yet the end goal is that of creating social value. Therefore, it is proposed
that the varying characteristics of social opportunities, much like their commercial counterparts,
will drive the opportunity selection process.
The Nature of Social Opportunities
The process of opportunity recognition and exploitation remains a key focus for
entrepreneurship research (Shane & Venkataraman, 2000b; Venkataraman, 1997). For
commercial entrepreneurs an opportunity represents a potential source of commercial value
creation. Conversely, a social opportunity represents the potential to provide social wealth.
Whereas commercial opportunities may surface due to commercial market failure, social
opportunities are created from social market failure; for instance, the failure of a public good to
meet the needs of various stakeholders. In many cases these needs are created by consumer’s
inability to pay for services (Austin, et al., 2006). Examples include inadequate health care
coverage for impoverished people, lack of access to sufficient educational services, or poor and
non-existent housing. Thus the focus shifts from what potential wealth can be created to what
social need can be addressed.
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Consider, for instance, the case of Grameen Bank. Grameen Bank was founded by
Muhammad Yunus in 1976 as a means to provide micro-loans to impoverished people in
Bangladesh. Yunus recognized the opportunity for social improvement by providing small
amounts of startup capital to people whose only option at the time was uncertain and risky
predatory loans. By 2007, the bank had grown to over 24,000 employees and had provided
billions worth of loans to disadvantaged people (Bornstein, 1996).
Contained within entrepreneurship is a process wherein an entrepreneur identifies a potential
opportunity and exploits that opportunity by developing the necessary infrastructure and creating
a new venture (Ardichvili, Cardozo, & Ray, 2003). Implicit in this process is the necessary step
of opportunity evaluation and selection (Haynie, Shepherd, & McMullen, 2009). An
entrepreneur is confronted with a choice set of potential opportunities; the entrepreneur evaluates
the potential choices based upon a set of decision criteria, and selects the opportunity that
presents itself as more attractive to the entrepreneur. For instance, Haynie et al (2009), among
other things, showed that the attractiveness of an opportunity is due in part to the potential future
resource generation capability of that opportunity. An entrepreneur would be more likely to
select opportunity X over opportunity Y if he or she determined that opportunity X had the
greatest potential for future gains.
The availability of opportunities has a potential important impact on the selection process.
The literature suggests that availability of commercial and social opportunities in a given market
are quite different. Commercial opportunities are understood to be rare, knowledge dependent
(Shane, 1999), and recognized by individuals with certain attributes (Kirzner, 1979). Due to the
premium nature of viable commercial opportunities, it makes sense that a great deal of research
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has focused the cognitive characteristics of entrepreneurs and the processes they follow to
identify opportunities (e.g. Hills, Lumpkin, & Singh, 1997; Krueger & Brazeal, 1994). In
contrast, social opportunities are much more abundant. A social entrepreneur may be presented
with a seemingly endless array of opportunities to fight poverty, counteract homelessness, and
address inadequate health care (Haugh, 2005). Stressing this point, Austin et al (2006), states:
“Unlike in the commercial sector in which unexploited, profitable, high-growth opportunities are
relatively hard to capture, in the social sector, social needs, and hence opportunities for social
entrepreneurs, often far outstrip the resources available to address them” (p.7). Thus, while
Haynie (2009) argues that opportunity evaluation and selection is an important piece in
understanding commercial entrepreneurship; because social opportunities are abundant and the
means to pursue them are limited, how SEs evaluate and select an opportunity becomes an even
more crucial factor in our understanding of social entrepreneurship. The following section
discusses attributes of social opportunities and their relationship to selection.
Attributes, Levels, and Hypotheses
Zahra et al 2009 proposed that social entrepreneurial opportunities are evaluated with
regards to the economic and social benefits that they potentially can accrue. Thus, referencing
the “total wealth” generated by an opportunity as a method of accounting for decisions
undertaken by a socially motivated, commercial venture which elicit tangible outcomes
(financial returns, products developed) and intangible outcomes (increases in well-being etc.). To
them, attractive options are ones that maximize total wealth with regards to the following
equation:
TW = EV + SV – (EC + OC + SC)
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In this framework, total wealth (TW) is a function of both the economic value (EV) and
social value (SV) produced by a course of action while subtracting the economic costs (EC),
opportunity costs (OC) and social costs (SC) incurred through the exploitation of the selected
opportunity.
While this framework is useful at a conceptual level, it is hindered by the inherent non-
quantifiability of social actions. While the potential benefit of economic opportunities can be
easily converted into monetary terms, no similar metric exists for ascertaining the expected value
of a social activity (Harding, 2004). What factors then would influence opportunity selection by
social entrepreneurs?
Social Identity Theory (SIT) provides an excellent framework for uncovering attributes
of social opportunities that may be attractive to social entrepreneurs. Social identity theory
(Haslam, Powell, & Turner, 2000; Turner & Oakes, 1986) is concerned with how individuals
categorize themselves into groups. For instance, individuals can perceive membership in a
certain group based on personal attributes such as age, gender, culture etc. (Ashforth & Mael,
1989), or on environmental characteristics such as belonging to a particular organization (Hogg
& Terry, 2000), or being associated with a community, state, nation, or other grouping such as a
particular sports team (Hogg, Terry, & White, 1995).
The identification with a particular group allows group members to make comparisons
with non-group members; in effect, creating an “us vs. them” mentality. While identification
with a particular group may have negative consequences such as providing an antecedent for
ethnocentrism and workgroup conflict (Ashforth & Mael, 1989), social identification has been
shown to have a significant impact on pro-social, altruistic behavior. For example, the sense of
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connectedness fostered by the feeling of belonging and interaction has been shown to increase a
person’s empathy towards other members of that group (Kramer, Pommerenke, & Newton,
1993) and increase the probability a person will engage in pro-social behaviors directed towards
that group. For instance, members of a particular social identity would be more likely to
volunteer for an organization that supports members of a person’s perceived in-group (Tidwell,
2005).
SIT concludes that the proximity of the social opportunity would affect the probability
that a social entrepreneur would direct their socially beneficial actions towards the affected
group. In connection with Zahra’s (2008) framework, the empathic leanings provided by SIT and
the desire to maximize social wealth would suggest that a more viable opportunity is one in
which the social problem is a widespread occurrence (scope), and one where the SE has the
potential to provide a greater increase in social utility (efficacy). These will now be discussed in
turn.
Proximity. The motivation to engage in altruistic behavior that benefits one’s in-group offers
a reasonable explanation as to why social entrepreneurs seem to predominantly address local
problems. The propensity to evaluate a social opportunity as viable due to proximal
considerations has been well documented in qualitative reviews of social entrepreneurship.
Consider the following interview excerpts presented in Shaw and Carter’s (2007) work on the
antecedents of social entrepreneurship:
… I want to see the change for myself and where I live, it can be frustrating to see
what happens where you live. I really want to put something back. (p.426)
A local need was identified; nobody else was willing to start the initiative (p.426)
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I can see opportunities and facilitate developments for the community to take
advantage of. (p. 427)
Or the following taken from Hoogendoorn et al’s (2010) typology regarding the
individual characteristics of SEs:
At odds with conventional entrepreneurship, social entrepreneurs seem to be
driven by obligations and need rather than opportunity. Their attention is directed
towards collective need-driven action for local change, with little emphasis on
outcomes and more on the process of doing something. (p.18, emphasis added)
Taken together, these studies provide compelling evidence for the assertion that SEs are
driven to solve local problems. This may be due in part to the increased probability that a social
entrepreneur whose networks, livelihood, and daily activities which are part of the local
community, identifies strongly with the local community as their in-group.
This is supported by other work in SIT which states that the primary driver of altruistic
in-group oriented behavior is not only a product of identification with that group, but is also
derived from the ability of an individual to acquire knowledge of a problem affecting members
of that group (Bekkers & Wiepking, 2011). In this instance, it is reasonable to suggest a SE’s
membership and participation in a local community would provide them with superior
knowledge of underlying social problems faced by certain members of that community.
Thus, it is hypothesized that proximity will be an important factor when selecting viable
social opportunities. Proximity would provide the motivation necessary to engage in prosocial
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behavior out of desire to benefit the members of a SEs ‘ingroup’. Furthermore, logic suggests
that proximity would increase a SEs knowledge and awareness of a social problem, a primary
enabler of altruistic activity. Stated formally:
H1: Decisions to exploit a social opportunity are positively related to opportunity proximity
Pervasiveness. Opportunity scope refers to how widespread and pervasive the social issue is;
be it poverty, environmental degradation etc. It makes sense that entrepreneurs choosing to
maximize social wealth within local communities by engendering social change would first
choose to tackle the most pressing issues affecting a population.
SEs directing their efforts towards larger areas of unfilled social needs is analogous to
commercial entrepreneurs seeking wealth maximization. For commercial operations high levels
of unfilled demand is an attractive industry characteristic. Larger target markets equates to
greater amounts of potential consumers and higher levels of wealth generation. So too with
social entrepreneurs, more pressing issues create an opportunity to generate social improvements
for larger concentrations of people.
Consider for instance the fact that nearly 15 million people die each year from communicable
diseases, infections, and prenatal conditions, many of them preventable given adequate access to
health care (World Health Organization, 2011) It comes as no surprise then that a sizable
proportion of social entrepreneurs listed as fellows for the Ashoka foundation (a social
entrepreneurship network) are dedicated to bringing health care solutions to poor and
disadvantaged populations.
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Thus, under a social wealth maximizing framework it is hypothesized that SEs will evaluate
social opportunities as more favorable when the opportunity carries with it the ability to affect
larger, more prevalent problems.
H2: Decisions to exploit an opportunity are positively related to perceived opportunity
pervasiveness
Impact. Apart from issues about opportunity scope (who can I help), are issues about
potential opportunity efficacy (how much can I help). Naturally, since social entrepreneurs have
a limited set of resources, tradeoffs must be made in terms of how those resources are employed
to pursue opportunities. While it is argued that the number of individuals affected represents a
prime concern for the pursuit of social opportunities, a second consideration is how effective can
the social entrepreneur be at helping the target individuals. This is similar to the distributive
efficiency criterion used in welfare economics (Paavola, 2007) used to measure the efficiency of
the provision of social goods. In this framework, allocations are efficient when goods flow to
those who most need them, or those that can extract the most benefit out of resource provisions.
Thus utility, or units of improvement in social value, would be greatest when efforts are directed
towards opportunities that have the largest potential for generating impact. In keeping with the
framework of social wealth maximization, the most attractive opportunities then become those
which are perceived to be the most efficacious:
H3: Decisions to exploit an opportunity are positively related to perceived opportunity impact)
Like all businesses, social entrepreneurial ventures need to generate funds for survival.
Unlike commercial operations, a social venture’s mission places additional strain upon
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organizational resources. The hybrid business model adopted by social entrepreneur’s means that
managers operate with a dual focus, both on organizational performance towards the pursuit of a
social goal, and performance towards survivability. Survival is made difficult by the fact that
revenue generation is contingent upon a customer base who, by the very nature of the social
opportunity, may be unable to pay for the provided services (Austin, et al., 2006). While SEs
have additional sources of revenue generation and resources not available to commercial
entrepreneurs such as government grants, donations, and volunteer work, (Shaw & Carter, 2007),
these sources are uncertain. Furthermore, traditional sources of external capital normally
afforded to commercial ventures, such as venture capitalist financing, may be scarce for socially
driven organizations due to the difficulty with monetizing social activities.
As Weerawardena and Mort (2006) suggest, social ventures operate fully aware of the need
to balance economic viability with its social mission. In their view, social entrepreneurs are more
pragmatic individuals whose idealism is tempered by rational economic constraints. This is in
stark contrast to rhetoric which insinuates that SEs operate with at most, a very low regard for
the economic potential of an opportunity.
While a multitude of scholars accept the definition of the dual-focus social enterprise, what
remains to be tested is the degree to which social entrepreneurs factor financial returns into their
decisions to exploit social opportunities. The previous sections argue that various social
attributes of opportunities will augment the opportunity set SEs perceive as viable. Based upon
the portrait of a SE as a more pragmatic individual, the ability to generate financial return will
increase the desirability of an opportunity based upon its direct benefit to organization survival.
99
H4: Potential financial returns will have a positive effect on desire to pursue an
opportunity
H5: The effect of scope (a), impact (b), and proximity (c), is moderated by
perceived financial return such that higher levels of potential financial gain will
increase decisions to exploit an opportunity
As an extension to the previous theorizing we seek to test not only if the prospect of
wealth generated has a significant effect on ratings, but also if wealth given up is a significant
factor as well. To this end, we include opportunity cost as the final attribute in our hypothetical
firm profiles.
H6: Opportunity cost will have a negative effect on opportunity ratings
METHODS
Conjoint analysis
Conjoint analysis, first developed by Luce and Tukey (1964), is a popular methodology
used in marketing studies to determine consumer preferences for a particular product given that
product’s stated attributes (Green, Krieger, & Wind, 2001).
In a conjoint analysis a survey respondent is presented with product descriptions which
vary based upon levels and combinations of pre-determined factors. Given the product
description, the respondent is then asked to rate their purchase intentions (in the case of a rating
scale design) on a numbered scale. In other designs a respondent may be tasked with ranking the
given profiles (ranking method) or selecting a preferred option among two or more profiles
100
(paired comparison method) (Louviere, 1988). Researchers are then able to calculate consumer
preference in the form of attribute level values (called part-worths). These part-worth values
allow researchers to make inferences regarding potential consumer demand given a change in a
product level attribute.
While conjoint analysis has been used extensively in a multitude of marketing studies, its
usage has not been solely restricted to that field. Conjoint analysis, and a related methodology
called policy capture, has been employed by various researchers investigating topics such as
strategic decision making (Priem, 1992), evaluation of job applicants (Dunn, Mount, Barrick, &
Ones, 1995), and compensation decisions (Viswesvaran & Barrick, 1992).
Additionally, the use of conjoint analysis is not without precedent in the entrepreneurship
literature2. For example, Choi and Shepherd (2004) utilized conjoint analysis to determine how
an entrepreneur’s decision to start a new venture is influenced by perceptions of customer
demand, technology development, managerial capability, and stakeholder support. More recently
DeTienne, Shepherd and De Castro (2008) used conjoint analysis to determine how various
individual and situational factors affect an entrepreneur’s likelihood of persisting with a poorly
performing venture. Other areas of focus have been how venture capitalists evaluate potential
business plans (Franke, Gruber, Harhoff, & Henkel, 2006), and perceive new venture survival
probability (Zacharakis, McMullen, & Shepherd, 2007).
Conjoint analysis has considerable advantages over more basic designs where
respondents would be asked to individually rank the desirability of separate factors. For instance,
respondents may be motivated to alter their responses due to their preconceived notions of the
2For a more detailed review of entrepreneurship studies which feature conjoint analysis, please see Lohrke (2010).
101
social desirability of a particular answer (Lohrke, Holloway, & Woolley, 2010), or as some
researchers have shown, respondents may have difficulty in articulating complex decision
processes (Shepherd & Zacharakis, 1997). Thus, conjoint analysis serves as an established,
effective tool for analyzing the questions presented in this paper.
Variables
Dependent variable. The dependent variable will be the likelihood that the subject will
pursue the given opportunity. After being presented with a particular scenario the subject will
give their opinion based on a 7-point likert scale with values ranging from 1 (not at all likely) to
7 (very likely). The wording and use of a likert scale is consistent with methods utilized in other
entrepreneurial decision studies (Haynie, et al., 2009).
Independent variables. The independent variables are the attributes identified
previously in the paper. The social variables tested consist of opportunity proximity,
pervasiveness, and potential impact. Financial attributes include potential for economic return
and opportunity cost. Values for these attributes are tested on two levels: High to Low, and
proximity is described as either near or far. Similar descriptors have been used in past conjoint
analysis studies to denote levels of an attribute (Choi & Shepherd, 2004). Table 1 provides
detailed descriptions of the attributes and levels used in the analysis.
102
Table 3.1:
Conjoint Analysis Attributes and Levels
Attribute Levels Text description
Proximity
Local
Non-local
To a large extent, the opportunity is…
…a local problem
…not a local problem
Scope
Low
High
A … are affected by the problem
…small number of people…
…large number of people…
Efficacy (impact)
Low
High
It is probable that these activities will create a…
… small improvement
…large improvement
Financial return
Low
High
It is probable that the opportunity would generate…
…a small financial return
…a large financial return
Opportunity Cost
Low
High
If you applied the same skills to a fully commercial
venture, you could make…
…somewhat more
…significantly more
Further, to account for variations in opportunity rating based on the age and prior
experience of the entrepreneur; these variables were included in the analysis as controls.
Research Design
A fully crossed factorial design (each subject rating all possible combinations of
scenarios) would require participants to evaluate 32 (25) scenarios. Coupled with a test-retest
component, this increases the risk of respondent fatigue thus threatening the validity of results
(Green & Srinivasan, 1990). To mitigate this concern, a fractional factorial design was adopted
(Gunst & Mason, 2009), which allows for the testing of all main effects and two-way
interactions using 16 profiles. Four profiles were replicated throughout the survey as a means to
establish test-retest reliability. Additionally, 1 practice profile was issued at the start of the
103
instrument in order to familiarize the participants with the process. This brings the total profiles
assessed by each participant to 21.
Pre-Test
The aim of the current research is to test both a commonly held belief about social
entrepreneurs and opportunity attributes already described in the extant literature. Despite this,
the researchers still felt it was prudent to conduct a pre-test in order to verify the appropriateness
of the selected attributes.
A series of interviews were conducted with self-described practicing social entrepreneurs
in a major metropolitan area. Interviews followed a structured format in which each SE was
asked to describe the opportunity they pursued and their motivation for doing so. The
conversations were recorded and reviewed for mentions of key attributes such as the following:
“We realized that by going forward… we could help a lot of people,” and “I kind of fell into it, I
saw a lot of women in the area that needed assistance.” After the initial series of questions, the
SEs were shown the proposed opportunity attributes and invited to provide feedback. The SEs
responded favorably and rated the attributes as major factors in the decision process.
Given the feedback, the researchers were reasonably confident that the opportunity
attributes selected represented important factors in the decision process and decided to continue
with the conjoint analysis.
Sample
The survey sample was drawn from individuals who indicated they had an interest in
starting a for-profit social venture. Participants were recruited from the online web service,
104
Amazon Turk (MTurk). MTurk is an online labor market where recruiters can post jobs and
surveys to be completed by a variety of people. Initial research suggests that the sample
characteristics obtained from Mturk are very similar to samples obtained through more
traditional means (Paolacci, Chandler, & Ipeirotis, 2010). The initial sample pool consisted of
189 people who were compensated $2 for their time. Due to the unique source and the self-
selection method of enrolling in the survey, the researchers felt it was necessary to include some
basic filters to ensure sample individuals were the participants of interest. A short comprehension
check was included to verify respondents read and understood instructions. Of the initial 189
people, 15 were dropped for spurious answers on the comprehension check. To ensure that
sampled individuals were, in fact, interested in new ventures, participants completed a 10 item,
7-point likert scale for entrepreneurial intent (Thompson, 2009), The lowest quartile of scores for
entrepreneurial intent were dropped (34 subjects), resulting in a final sample size of 140. This
exceeds other published entrepreneur conjoint studies utilizing final sample sizes of between 50
and 100 individuals (e.g.Choi & Shepherd, 2004; DeTienne, Shepherd, & De Castro, 2008;
Haynie, et al., 2009).
Results
To determine the consistency of ratings, participants rated 4 repeated profiles throughout
the survey allowing researchers to determine test-retest reliability. The intra-class correlation
statistic was favored over the standard Pearson correlation due to the non-linear relationship
between items. An ICC of .73 indicates acceptable levels of agreement within raters across
items.
105
Hierarchical regression analysis was used to explore the relationships found in the base
model (control), the main effects model, and the full model (controls, main effects and
interactions). The results of the analysis are displayed in table 2.
With regards to the main effects model, proximity exhibited a significant negative
relationship to opportunity evaluation (β = -.52; p > .001), indicating that opportunities which
address social issues closer to the entrepreneur’s home community are more likely be rated
higher by entrepreneurs. Both pervasiveness (β = .718; p > .001) and impact (β = .735; p > .001)
had a significant effect on opportunity evaluation. This demonstrates that opportunities which
address more pervasive needs and opportunities which are perceived to have greater potential for
ameliorating a social concern were rated more favorably. Finally, both financial returns and
opportunity cost exhibited a significant effect on opportunity rating. Together, these results
provide support for H1, H2, H3, H4 and H6 respectively. Figure 1 displays the mean attribute
utilities across all participants.
106
Table 3.2
Summary of Analysis
Controls
Main Effects
Full Model
Variable β S.E.
β S.E.
β S.E.
Age 0.001 0.011
0.001 0.01
0.001 0.01
Experience
-
0.032 .013*
-0.032 .01*
-0.032 .01*
Proximity
-0.52 .156***
-0.716 .188***
Pervasiveness
0.718 .155***
0.29 0.156
Impact
0.735 .192***
1.044 .232***
Returns
1.67 .19***
1.69 .334***
Opp. Cost
-0.687 .156***
-0.35 0.23
Returns x Proximity
0.391 0.273
Returns x Pervasive.
0.777 .298**
Returns x Impact
-0.474 0.325
Returns x Opp. Cost
-0.592 0.283*
Model
Within-level variance .051
.115
.118
Change .064 .003
Between-level variance .939
.939
.94
Change 0 .01
p > .05 *
p > .01 **
p > .001 ***
107
Figure 3.1
Mean utilities
As shown in table 2, one of the three tested interactions was statistically significant;
specifically, the interaction between potential financial returns and the pervasiveness of the
social problem. The interactions between both financial returns and proximity and financial
returns and pervasiveness were insignificant leading to the rejection of hypotheses H4a and H4b.
The interaction between financial returns and impact is displayed visually in figure 2.
108
Figure 3.2
Pervasiveness by Financial Returns
In figure 2, social problem pervasiveness is plotted on the x-axis and the dependent
variable, opportunity rating, is indicated on the y-axis. The plot indicates that opportunity rating
is magnified when the potential business opportunity provides a large financial return and
addresses a widespread problem. These results lend support to H4b.
DISCUSSION
This paper seeks to test a framework for assessing the desirability of business
opportunities that provide both financial and social benefits. A significant amount
ofentrepreneurship research has focused on opportunity exploitation decisions. So much in fact,
scholars can be reasonably confident of the characteristics of opportunities that would drive an
individual to prefer one vs. another. However, this research has concentrated almost exclusively
0
1
2
3
4
5
6
7
Low Pervasiveness High Pervasiveness
Op
port
un
ity R
ati
ng
Low Return
High Return
109
on purely commercial opportunities and, as a result, we have little knowledge of how selection
occurs when the intended start-up seeks to generate both social and economic value. This lack of
substantive decision models is indicative of the relative infancy of social entrepreneurship as an
academic field. To progress with paradigm building and the establishment of the boundaries of
social entrepreneurship, scholars should seek to move beyond anecdotal accounts and generic
typologies and rigorously investigate both the characteristics and motivations of social
entrepreneurs. This paper is a step towards achieving that end. By utilizing a conjoint
methodology, the general importance of three opportunity social attributes was tested. Secondly,
by including expected financial returns this paper tests the ‘white knight’ typology of social
entrepreneurs by analyzing how both social and financial returns are weighed.
Previous theorizing regarding social opportunities suggests, among others, three major
attributes which describe social problems and the businesses founded to correct them; namely,
the characteristics of proximity, pervasiveness and potential impact. In line with theorizing, all
three attributes carried significant weight regarding the rating of business opportunities. When
assessing the value of each attribute independent of one another, participants preferred
opportunities that addressed problems in the local community, carried a greater impact, and were
directed towards social problems that were more pervasive. Regarding proximity, the result is in-
line with identity theory which states that group members aspire first to aid in-group vs. out-
group members. Membership in a community can create and enhance feelings of connectedness
and dependency. Entrepreneurs whose personal history and self-concept are derived from group
membership may first exert effort to correct problems experienced by proximal group members.
It may also be the case that proximity enhances awareness of local social concerns. It can be
110
assumed that during a civic-minded individual’s normal interaction with the community, the
presence of social problems such as poverty, homelessness or at-risk youth may become more
readily apparent and visibility causes an SE to weight the social opportunities more heavily.
With regards to problem pervasiveness and potential impact, a value maximization model
such as Zahra’s (2009) total wealth framework and rational economic theory may be valuable
tools when assessing the desirability of social opportunities. When framing opportunities in
terms of the potential social value to be produced it is assumed that social value is a function of
the quantity of people helped (pervasiveness) and the resulting increase in individual well-being
(impact). The results partially support the value maximizing model given that financial returns
significantly interacted with problem pervasiveness to produce more desirable business
opportunities. Despite this, sample participants were unaffected by financial returns when
viewed with either proximity or impact. This suggests that social opportunity selection is more
complex than previously understood. Previous typologies have described social entrepreneurs as
social champions who, by virtue of their personal morality, eschew the profit motive in favor of
social impact. While this may be the case when considering instances when social opportunities
are defined by close proximity and perceived impact is high, in scenarios with high
pervasiveness, financial returns were significantly valued in addition to social benefits. This
means that social opportunity selection is more complex than previously thought. In some
instances, SEs conform to previously held conceptualizations where financial returns appear to
add no additional value to potential social opportunities. This was true when considering the
proximity of the issue and the potential impact. In other instances, financial returns interacted
significantly with social returns to produce more desirable opportunities, as was the case with
111
issue pervasiveness. Since both of these effects are a function of the opportunity’s social
attributes future research will be needed to further delineate the relationship between financial
and social returns.
Limitations and Future Research
The authors acknowledge that the preceding study is not without limitations. The analysis
had participants rate SE opportunities in a context that was independent of resource
considerations. It may be the case that the favorability of attributes would be altered depending
on the resource constraints faced by a new venture. For example, a SE may be more influenced
by financial returns during the critical (and often precarious) startup phase, but less influenced by
returns as slack resources become more available.
Dees (1998) argues that SEs are not limited by organizational resource constraints,
instead they creatively innovate around the resource constraints; using the constraint as an
opportunity to focus on the social mission. However, Weerawardena and Mort (2006) found the
opposite to be true. In their review of several SE case studies, the SEs understood resource
constraints and altered their decision criteria of what constitutes a viable social opportunity. They
“took the low hanging fruit” or less resource intensive social opportunities. Following this,
Weerawardena and Mort proposed that social entrepreneurs actively engage in risk management,
are aware of financial constraints, and seek to balance the social mission with economic concerns
based on availability of resources. This argument is an example of classic rational choice theory
in economics. In this instance, an actor would assess the costs of engaging in an activity vis-à-vis
their ability to shoulder that burden; mitigating risks by ascertaining potential future income
112
generated through the pursuit of the opportunity. Again, interviews in Weerawardena and Mort’s
(2006) review of SE firms support this reasoning:
“So in an entrepreneurial term, we took the low apples. We took the ones that
were worthwhile getting at the time and only after the first ten years in a sense did
we take on board the really hard challenging positions. We had a mindset change
to say, look, we now have some resources. We can go out and push boundaries a
bit more.” (p. 31)
This excerpt highlights two important considerations: 1. Managers are aware of the
constraints placed upon the organization and adjust their activities accordingly and 2. Resource
constraints are evaluated in a dynamic context. It is possible that a social entrepreneur would
place an emphasis on pursuing more financially lucrative opportunities at t1, with the expectation
that the funds generated would relax resource constraints and allow them to pursue a more
socially oriented opportunity at t2. Future research could investigate how a SE considers an
opportunity’s ability to generate financial returns as a means of ensuring their ability to pursue
social opportunities, or creating resource endowments which will enable them adopt a more
socially oriented stance in the future.
In another vein, the survey instrument does not account for the amount of risk associated
with pursuing a social venture. The literature is clear that all forms of entrepreneurship involve
shouldering a certain degree of risk. However, there is evidence to support the argument that
social entrepreneurs are faced with greater amounts of risk and uncertainty. Part of this stems
from their focus on social returns as well as economic sustainability. By adopting a dual focus,
113
the mechanisms associated with founding and organizational survival become more complex
(Moizer and Tracey, 2010). Unlike a traditional commercial venture, the demands of creating
social value place a significant burden on social entrepreneurial firms, constraining their ability
to generate funds and threatening their survival (Weerawardena & Mort, 2006). Another
challenge is the market context in which SE firms operate. While traditional, commercial
ventures purposefully seek out lucrative markets, SEs choose to locate in failing or inefficient
markets (Di Domenico, Haugh, & Tracey, 2010), which may explain the increased difficulty SEs
face securing startup capital (Zahra, Gedajlovic, Neubaum, & Shulman, 2009).
These challenges culminate in a decreased survival probability for SE firms. Indeed,
Hoogendoorn (2011) analyzed numerous SE organizations across a variety of countries and
found that a majority of SE firms did not make it out of the initial startup phase. Part of their
analysis determined this was due to increased informational barriers and individual factors such
as a higher fear of failure and another part was due to increased financial constraints.
Tan (2003) presents SEs along a continuum characterized by varying degrees of altruistic
activity. At the lowest level, SEs create social benefits through their actions but do so out of a
personal motivation to seek profits. At higher levels, SEs pursue more socially benevolent
opportunities and personal profit seeking is marginalized. Tan argues that these different
orientations produce two different forms of risk. At the lower end of the scale, by pursuing a
social additive to their operations, SEs risk forgoing personal profit. At the other extreme, as SEs
pursue purely social opportunities without regard for financial return they increase their risk of
personal loss. This is confirmed by Shaw and Carter (2007), where a majority of SEs
interviewed commented that the pursuit of social opportunities negatively impacted their
114
immediate and long-term financial well-being. Future research could include risk aversion as an
entrepreneur-level variable as more risk averse SEs may value financial returns higher and be
less willing to pursue complex and expensive solutions to social problems.
The preceding paper proposes that social entrepreneurs balance both social and economic
potential value creation along with resource constraints when selecting social opportunities. It is
hypothesized that while SEs may be attracted to opportunities that confer the most social utility
they are mindful of more pragmatic concerns and will select opportunities that are financially
satisfying given a level of resource constraints. Under a social identity framework, it is proposed
that more proximal opportunities will be more attractive due to in-group effects. Additionally, it
is proposed that, like commercial value maximizing opportunities, opportunities that maximize
social value via scope and efficacy will have a higher probability of selection.
However, this presents a limitation to the study. While social identity theory offers an
explanation for the apparent desire to engage in social entrepreneurship in local communities, it
does not explain SE activities targeted to out-group populations. An example would be Kiva
Microfinance, a lending organization based in San Francisco which, since its inception, has
worked to promote economic growth in African villages (Flannery, 2007). A possible
explanation could be the degree to which a social entrepreneur possesses a global or local
identity. A global identity, or the degree to which an individual perceives national populations to
be part of their in-group, has been shown to increase willingness to engage in cross-border
philanthropy (Buchan, et al., 2011). Further research could explore how social entrepreneurs
frame their identities with regard to selection of social endeavors.
115
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Appendix A
Service Failure Scenario Used in Paper 2, Study 1
Core Scenario (Common to All Participants)
Imagine you visit “The Coffee Bean,” a locally owned coffee shop that roasts and brews its own
brand of coffee. You have some free time one afternoon, so you decide to go to the shop and
order your favorite drink.
CSR Manipulation
Control Condition
No Additional information
Low CSR Condition
After arriving at the shop, you learn that the mission of “The Coffee Bean” is to help protect the
environment. To accomplish this mission, “The Coffee Bean” donates 2% of their profits to local
and national environmental organizations.
High CSR Condition
After arriving at the shop, you learn that the mission of “The Coffee Bean” is to help protect the
environment. To accomplish this mission, “The Coffee Bean” donates 15% of their profits to
local and national environmental organizations.
Service Failure Manipulation
After placing your order you feel that you are made to wait an unreasonable amount of time for
your drink. Additionally, when you receive your drink, you realize they got your order incorrect.
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Appendix B
Scales used in Paper 2, Studies 1 and 2
CSR Manipulation Check
(1 = not committed, 7 = very committed)
Please rate how committed you feel the firm is to the environment…
…not committed… very committed
Negative word of Mouth
(1 = strongly disagree, 7 = strongly agree)
Because of this incident, I would...
...spread negative word-of-mouth about firm
...denigrate the firm to my friends
...tell my friends not to deal with firm
Anger
(1 = strongly disagree, 7 = strongly agree)
Because of this incident, I would feel...
not resentful at all… very resentful
not angry at all… very angry
not outraged at all… very outraged
Trait Environmental Concern (Study 1)
Participants completed the 16-item revised New Environmental Paradigm scale developed by
Dunlap, Van Liere, Mertig, and Jones (2000)
(1 = strongly disagree, 5 = strongly agree)
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Perceived Value Overlap
(1 = strongly disagree, 7 = strongly agree)
To what extent do you agree or disagree that the Coffee Bean shares the values of its
customers?
To what extent do you agree or disagree that the coffee bean is concerned with the
opinions of its customers?
Below you will see several sets of circles. Imagine that circle on the left your own values and the
circle on the right represents ‘The Coffee Bean’s’ values. Please indicate which diagram (A, B,
C, D, E, F, G, or H) best describes the level of overlap between your own values and The Coffee
Bean’s values
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Appendix C
Service Failure Scenario Used in Paper 2, Study 2
Core Scenario (Common to All Participants)
Imagine you visit “The Coffee Bean,” a locally owned coffee shop that roasts and brews its own
brand of coffee. You have some free time one afternoon, so you decide to go to the shop and
order your favorite drink.
CSR Manipulation
Control Condition
No Additional information
CSR Condition
After entering the store, an employee asks you to complete a short survey about your preferences
for corporate charity. The employee explains that the Coffee Bean donates 15% of its profits to
charitable causes and wants to survey customers for their preferences. The employee also
explains that the Coffee Bean will base its contributions on the preferences of its customers; so,
if half of the customers select one cause, and the other half select another cause, the Coffee Bean
would send 7.5% of its profits to each cause, for a total of 15%. The employee then asks you to
indicate which cause you prefer. If asked to choose between the causes shown below, which one
would you choose? (Environmental conservation, health initiatives, human rights campaigns,
local community organizations)
Service Failure Manipulation
Now imagine that you get to the counter and place your drink order. However, you feel that you
are made to wait an unreasonable amount of time for your drink. Additionally, when you receive
your drink you realize they got your order wrong.