When Does Corporate Social Performance Pay for International Firms?

[We’re pleased to welcome author Alan Muller of the University of Groningen. Dr. Muller recently published an article in Business & Society entitled “When Does Corporate Social Performance Pay for International Firms?,” which is currently free to read for a limited time. Below, Dr. Muller reflects on the impact and innovations of this research:]

What motivated you to pursue this research?

I was inspired to pursue this research because I wanted to better integrate the literature on corporate social performance and internationalization. There is a rich body of research on the link between social performance and financial performance, and an equally rich body of research on the link between internationalization and financial performance. Yet thus far the two had not been connected in any meaningful way. This paper seemed like a great opportunity to link these two streams.

Were there any specific external events—political, social, or economic—that influenced your decision to pursue this research?

The financial crisis that began in 2008 had profound consequences for both corporate social performance and internationalization. Society’s demands for greater responsibility grew louder while it became painfully clear that international success should not be taken for granted. In a way, the crisis intensified scrutiny of both realms, and led to increased recognition that we need to attend to both the costs as well as the (highly uncertain) benefits associated with both. I began thinking that the costs and benefits of both are likely mutually contingent and unequally distributed.

What has been the most challenging aspect of conducting your research? Were there any surprising findings?

The challenge is not so much in the empirics as it is in the positioning of the research. Given the split between the social responsibility literature and the international business literature, the question is: to which audience should the paper be aimed at? To be honest, I positioned it initially as a contribution to the international business literature, but in hindsight it fits better as a business and society paper.

In what ways is your research innovative, and how do you think it will impact the field?

I hope it will function as a bridge between the two bodies of scholarship, and spur more rigorous dialogue with the aim of linking the two more systematically. Because in this day and age, I do not know how the performance effects of social performance and internationalization could be conceptualized in isolation. I also incorporated a few robust analytical techniques that I hope will inspire others.

What did not make it into your published manuscript that you would like to share with us?

I initially had a role in mind for firms’ consumer orientation, because I expected that the legitimacy effects of social performance would work differently for consumer-oriented industries. I incorporated consumer orientation as an additional moderator to an already moderated U-shaped curve. My findings indicated that consumer-oriented firms had even more difficulty benefiting from their social performance internationally, which made sense to me. However, all my friendly reviewers told me that a four-way interaction was a bridge too far!

What advice would you give to new scholars and incoming researchers in this particular field of study?

Follow your passion! But remember that your story, no matter how inspiring to you, will not sell itself. Be clear who is in the audience you are speaking to, and how your story matters for them.

What is the most important/ influential piece of scholarship you’ve read in the last year?

This is difficult, but probably “The Role of Short-Termism and Uncertainty Avoidance in Organizational Inaction on Climate Change”, by Slawinski, Pinkse, Busch, & Banerjee (Business & Society, 2017): https://doi.org/10.1177%2F0007650315576136

A close second would be “Do‐no‐harm versus do‐good social responsibility: Attributional thinking and the liability of foreignness”, by Crilly, Na, and Jiang (Strategic Management Journal, 2016): https://doi.org/10.1002/smj.2388

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The Effect of Linguistic Style in an MD&A on Stock Market Reaction

[We’re pleased to welcome authors Dr. Mohamed M. Tailab and Dr. Marshall J. Burak of Lincoln University. They recently published an article in International Journal of Business Communication entitled “Examining the Effect of Linguistic Style in an MD&A on Stock Market Reaction,” which is currently free to read for a limited time. Below, they discuss this research:]

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Language as the currency of most human social processes can be converted to words. Investors and market participants attach very different connotations to the words, rely more on intuition than hard data, and react more to the verbal tone. Quantitative information contained in financial annual reports in general and in an MD&A in particular does not provide a complete picture to the investors about the expected firm value. So, the need arises to analyze the effect of narrative disclosures on market reaction as well. In addition, analyzing narrative disclosures is more easily understood than quantitative data, but at the same time it offers a different perspective. This initiated our research interests and concerns to explore in depth the impact of linguistic style in narrative disclosures on decision makers.Therefore, we decided to investigate the effect of language used in the MD&A between the speaker (management) and the listeners (investors), which in turn influences market reaction. We had hypothesized that the stock market (return and risk) has a significant response to the linguistic tone contained in the MD&A. Even though the initial hypotheses have never been proven, this study proves principles about the usefulness of an MD&A to investors.

This work expands on the understanding of the business communication literature by using an interdisciplinary approach. This approach has emerged the narrative disclosures with applied linguistic and market reaction. To this end, this paper is the first to use the partial least squares – structural equation modeling (PLS-SEM) approach and contributes to the existing body of knowledge in several ways including (a) a new approach to strengths, (b) evaluation of MD&A content, (c) proof that MD&A length does not play a strong role in market reaction, and (d) findings that capital assets pricing model (CAPM) or Farm-French models are more reliable than the realized volatility.

The study indicates that the average of negative tone is greater than the average of positive words in the MD&A. This may be because the study period started in 2010, there is a possibility that the financial crisis still has an effect on the verbal tone of MD&A reports, and allows the management writers to be more conservative. One interesting observation is that the linguistic content in an MD&A was not consistent with financial performance. It can be concluded that that management most likely does not use its financial performance as a guide for writing the MD&A, or maybe it has another criterion for delivering its message to the investors.
A challenging aspect of this work is that using dictionaries built by researchers in other fields (e.g., psychology) may not be appropriate for a content analysis of financial reports. We have limited our research by neglecting the investors’ types and their preferences. So, it would be better if future researches studied the investors’ preferences, what information investors need to find in the MD&A before making their decisions.The study recommends conducting a more efficient analysis of the narrative disclosures to investigate whether management writers communicate truthful information to investors by offering relevant data about financial performance.

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Is Joint Achievement of Customer Satisfaction and Efficiency Beneficial in Merger Contexts?

[Editor’s Note: We’re pleased to welcome Vanitha Swaminathan, who collaborated with Christopher Groening, Vikas Mittal, and Felipe Thomaz on their paper “How Achieving the Dual Goal of Customer Satisfaction and Efficiency in Mergers Affects a Firm’s Long-Term Financial Performance” from the May issue of Journal of Service Research.]

02JSR13_Covers.indd• What inspired you to be interested in this topic?
This paper began by looking at the often repeated assertion that mergers lead to reductions in customer satisfaction. While one may believe this to be the case, there is evidence that customer satisfaction improvements actually increase financial value…which led us to ask the question, would managers wishing to maximize shareholder value reduce their focus on customer satisfaction in a merger? Following this, we wondered if a focus on both customer satisfaction and efficiency improves shareholder value even more in a merger context.

• Were there findings that were surprising to you?
Contrary to what conventional wisdom regarding mergers and customer satisfaction, we found that a dual emphasis on both customer satisfaction and efficiency improvements will actually benefit firms in a merger context. I think the biggest surprise was our finding that non-merged firms did not significantly benefit from a dual emphasis. In other words, we thought that a merged firm would find greater value in a dual emphasis, but not that a non-merged would find little to none.

• How do you see this study influencing future research and/or practice? It will help to go deeper into analyzing why customer satisfaction and efficiency improvements in merger contexts facilitate shareholder value maximization, more so than non-merger settings. Is it the improved availability of resources, or greater access to more profitable customer groups? Is it due to the creation of new synergies between the merging companies?
Addressing these questions will help increase our understanding of when to best implement these typically opposing goals (i.e., efficiency and customer satisfaction improvements) even in non-merger settings.

Read “How Achieving the Dual Goal of Customer Satisfaction and Efficiency in Mergers Affects a Firm’s Long-Term Financial Performance” from Journal of Service Research for free by clicking here. Don’t forget to click here to sign up for e-alerts and be in the know about all the latest from Journal of Service Research!

swaminathan-vanithaVanitha Swaminathan is Associate Professor of Business Administration and Robert W. Murphy Faculty Fellow in Marketing at the University of Pittsburgh. Her research interests revolve around branding strategy and consumer-brand relationships.GroeningChris_1

Christopher Groening is Assistant Professor of Marketing at the College of Business at Kent State University. Chris’s current academic research centers around investigating stakeholder influence on the financial outcomes of a firm.

MittalPhotoVikas Mittal is J. Hugh Liedtke Professor of Marketing at the Jones Graduate School of Business, Rice University and Adjunct Professor of Family Medicine at Baylor College of Medicine.Thomaz

 

Felipe Thomaz is a doctoral candidate at the Katz Graduate School of Business, University of Pittsburgh, Pittsburgh.

A Brand New Brand

A Brand New Brand of Corporate Social Performance“, by Tim Rowley, Toronto University and Shawn Berman, Boston University, currently appears as one of the most frequently cited articles in Business and Society, based on citations to online articles from HighWire-hosted articles. Professor Rowley and Professor Berman kindly shared their thoughts about the article.

Do you have any specific memories about doing the research, writing or the review/publishing process that you would like to share?

Reflection brings back faint remembrance of genuine trepidation while writing this article and sweat-dripping fear minutes before presenting it at the inaugural Conversazione at the University of Northern Iowa. Let us set the stage: We were newly-minted faculty members at Boston University and U of Toronto and incredibly grateful and respectful to the pioneers in the field. At the same time, as hungry young scholars conditioned to be overly critical we went at it with both barrels when John Mahon timidly said in that charming way he has, “You little craps are doing a paper about what is wrong with the field. Don’t screw up.”

What prompted you to do this research and write this article?

A key motivation for writing the paper was based on the thought that the business and society scholars had a rare opportunity.  While in other management fields scholars could only report (albeit, in sophisticated ways) how managers had acted, our field could lead practice and provide valuable guidance on the future evolution of business and society interactions.  And that promise depended on truly capturing reality in scholarship. Our worry at the time and purpose for writing the paper was that there was a growing disconnection between operational variables and reality.

Tell the story behind the article.

So, we sketched an outline during a 30 minute cab ride to Chicago O’Hara after an AOM conference, traded countless emails and put a full draft together over a long weekend in Boston.  However, criticizing the field and thus some of the work of the people who had blazed the social issues trail and given us many opportunities seemed dis-loyal.  Also, we had not read or heard some of our claims elsewhere so we questions ourselves – maybe we don’t get it or maybe we were speaking taboo. 

We were wrong – about how people would react, anyway.  Our senior colleagues encouraged our enthusiasm and received our ideas not as criticisms but as suggestions for pushing the field.  This we remember clearly.

Why did the paper receive so much attention?

It is not completely clear to us why this article generated significant interest.  We didn’t say anything that others were not thinking.  In a way we simply recorded the thoughts of the next generation of scholarship.  In fact, Griffin & Mahon, 1997 were already questioning CSP measures. Our ideas were not new, but perhaps timely.  To the credit of many new scholars in the field, research rigor has improved dramatically as operational variables are more substantially grounded with theoretical and operational justification. We are pleased if our article helped in any way, but it is clear the field has moved on making many of our concerns quibbles of the past.  And for that we are most delighted.

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