The Debate over Doing Good: Corporate Social Performance, Strategic Marketing Levers, and Firm-Idiosyncratic Risk

Xueming Luo & C.B. Bhattacharya
Journal of Marketing
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Executive Summary
Marketers and investors face a heated, provocative debate over whether excelling in social responsibility initiatives hurts or benefits firms financially. This study develops a theoretical framework that predicts (1) the impact of corporate social performance (CSP) on firm-idiosyncratic risk and (2) the role of two strategic marketing levers, advertising and research and development (R&D), in explaining the variability of this impact among different firms. The results show that higher CSP lowers undesirable firm-idiosyncratic risk. Notably, although the salutary impact of CSP is greater in firms with higher (versus lower) advertising, a simultaneous chase for CSP, advertising, and R&D is harmful with increased firm-idiosyncratic risk. For theory, the authors advance the literature on the marketing–finance interface by drawing attention to the risk-reduction potential of CSP and by shedding new light on some critical but neglected roles of strategic marketing levers. They also extend CSP research by moving away from the long-fought battle for a universal impact of CSP and toward a finer-grained understanding of when some firms derive more risk-reduction benefits from CSP. For practice, the results indicate that the “goodwill refund” of CSP is not unconditional. They also empower marketers to communicate more effectively with investors (i.e., doing good to better manage the risk surrounding firm stock prices).

Xueming Luo is Eunice & James L. West Distinguished Professor and Associate Professor of Marketing in the College of Business Administration at the University of Texas at Arlington. His research focuses on econometric modeling, the strategic marketing–finance interface, and international marketing/business. His work has appeared in academic and practitioner journals, such as Journal of Marketing, Marketing Science, Journal of Marketing Research, Journal of the Academy of Marketing Science, International Journal of Research in Marketing, Journal of International Marketing, Journal of International Business Studies, Journal of Advertising Research, and Journal of Consumer Psychology.

C.B. Bhattacharya is E.ON Chair Professor in Corporate Responsibility in the European School of Management and Technology and Everett W. Lord Distinguished Faculty Scholar and Professor of Marketing at Boston University. His research interests are in the area of marketing strategy innovation and stakeholder marketing. Specifically, he studies how companies can use levers such as corporate and brand identity, membership and brand communities, and corporate social responsibility to strengthen stakeholder relationships. His work has appeared in journals, such as Journal of Marketing Research, Journal of Marketing, Journal of Consumer Research, Journal of Applied Psychology, and Organization Science, among many others.

Journal of Marketing, Volume 73, Number 6, November 2009
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Xueming Luo & C.B. Bhattacharya
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