The Effect of Corporate Visibility on Social Responsibility

The general public can be a stakeholder in a firm, even when it does not have direct ownership. And as the public becomes more vested in a firm’s actions, the firm may be more likely to engage in corporate social responsibility (CSR) activities.

In a recent paper, we use public visibility as a proxy for the public’s stake in a firm. Based on 3,400 newspapers from 1994 to 2008, we measure visibility for the U.S. S&P 500 firms with the frequency of print articles per year concerning the firm. We find that visibility has a significant, positive relationship with the CSR rating. Evidence also suggests this relationship may be causal and working in one direction, from visibility to CSR. While the existing literature provides other factors that influence CSR, visibility proves to have the most significant impact when tested alongside those other factors. Visibility also has a mediating effect on the relationship between CSR rating and firm size. CSR rating and firm size relate negatively for the lowest visibility firms and positively for the highest. Our paper provides strong evidence that visibility is an important factor to consider for studies on corporate social performance.

There has been much discussion in the literature about the impact of CSR on firm financial performance. However, there is less discussion on what motivates a firm to participate in social initiatives. Some common hypotheses include firm attributes such as size, profitability and financial performance, regulation and tax incentives, executive characteristics and contractual obligations, and, more recently, media exposure or visibility. Given that firms care about their reputation and the positive impact CSR has on that reputation, we focus on the visibility motivation. We hand collect our data by searching the ProQuest SeriesSolution news search engine which provides access to over 3,400 unique newspaper publications. We use this data to explore whether there is a relationship between visibility and CSR, and if visibility affects the strength of other factors, such as firm and executive characteristics, that could possibly affect CSR as shown in the previous literature.

Stakeholder theory has long suggested that a corporation may be accountable to members of society other than its shareholders (the very definition of CSR). A stakeholder is any person or group that has or claims ownership, rights, or interests in a corporation and its past, present, or future activities. Our study focuses on the secondary stakeholder. Secondary stakeholders are those who are influenced or affected by the corporation but do not engage directly in transactions. The media and the public are key secondary stakeholders that can mobilize public opinion in favor of or in opposition to a corporation. Prominent examples include the protests and media coverage of the Dakota Access Pipeline (opposed) and the positive media response to charities such as McDonald’s Ronald McDonald House (in favor). Stakeholder theory has suggested for some time that a firm’s exposure to external stakeholder claims affects corporate decision-making and strategy.

Some researchers argue that a corporation may be responsible to claimants for both implicit and explicit claims. This can be highly relevant to CSR if we presume the media and public have come to expect a degree of social responsibility from a corporation, thus categorizing social responsibility as an implicit claim. The International Institute for Sustainable Development (IISD) found that 42 percent of North Americans care about a company’s social responsibility, which implies that CSR is an issue of importance to secondary stakeholders. Media coverage and visibility could increase a corporation’s exposure to implicit claims. Failure to comply could lead to negative opinions of the corporation, affect performance, and even lead to regulatory intervention (explicit claim). Therefore, as a corporation’s visibility increases, the general public’s stake in a firm increases, and strong CSR initiatives will become increasingly necessary.

Our study makes three contributions to the literature. First, it provides a new measure of visibility and evidence for the significant impact of visibility on CSR. Second, it presents visibility as a more consistent and more powerful predictor of CSR initiatives than other factors previously studied. Third, our paper is the first to show that visibility has important mediating effects on the relationships between commonly used firm and CEO characteristics and CSR. It presents a new opportunity for researchers to understand the antecedents and consequences of CSR in the context of corporate visibility.

As society evolves, we increasingly recognize the important impact of organizations on people and our environment. Under the assumption that firms must continue to progress with social responsibility, it is important to understand what actors and mechanisms can advance this agenda. Our work demonstrates that one such group is the general public and that firms will respond to the public when people have a high awareness of a firm’s activities. Thus, the implication is that greater media visibility will continue to increase Corporate Social Responsibility as long as firms believe it is important to the public.

We demonstrate the existence of this visibility–CSR relationship through three hypotheses. Hypothesis (1) proposes that visibility increases the firm’s exposure to implicit claims made by the media and the public and therefore will lead to more CSR. In support of hypothesis (1), our study has shown highly significant positive relationships between visibility and CSR demonstrated in correlations and univariate and multivariate analyses. These results are consistent throughout the study and with findings in the literature. Our study also establishes evidence of causality and direction consistent with hypothesis (1). We demonstrate that the relative economic significance of visibility produced due to CSR is quite small and insignificant compared with CSR that is caused by visibility. These results hold when endogeneity is controlled for using lagged CSR rating. Multiple linear regression models demonstrate that among all factors considered, visibility is the strongest and most consistent predictor of a firm’s CSR rating. These results are consistent with hypothesis (2). Next, we show that corporate visibility significantly changes the well-studied relationship between firm size and CSR. When a firm is in the lowest quantile for visibility, firm size negatively affects CSR. That is, larger firms with lower visibility engage in less CSR. In contrast, firm size positively affects CSR when the firm is in the highest quantile for visibility. When a firm has high visibility, the larger it is, the higher its level of CSR. These findings provide evidence that visibility influences the relationship between other factors and CSR, which supports hypothesis (3).

This post comes to us from Professor Zhichuan Frank Li at the University of Western Ontario’s Ivey School of Business, Taylor Morris at TD Securities, and Brian Young, a professor at Wake Forest University. It is based on their recent article, “Corporate Visibility in Print Media and Corporate Social Responsibility,” available here.