Recent research suggests that corporate social responsibility disclosure is a double-edged sword

Hoping to attract customers, companies from Amazon Down Buzz we have taken praising their good deeds in corporate social responsibility reports.

CSR reports allow companies to highlight what they have done for employees, consumers, communities and the environment – essentially all of their goals beyond simply making a profit. Research shows that CSR statements are interconnected growing sales.

as professor of marketingI thought this raised an intriguing question: when companies are successful with CSR disclosures, do they acquire fresh customers, or do their additional sales come solely from their existing base?

In recent research several hundred Chinese companies, friend and I put the question to the test. We find that CSR disclosure reduces a firm’s dependence on existing customers by 2.1%.

This is good news for companies. This means that additional sales come from fresh customers who are actually impressed by the company’s CSR activities.

But not all the conclusions were positive.

To sell more products, companies usually have to buy more supplies. A logical follow-up question, then, is: does a company’s CSR disclosure lead it to acquire purchases from fresh suppliers?

In fact, we found the opposite. Companies that published CSR information seemed to discourage fresh suppliers. This is likely because suppliers often incur costs when a company decides to prioritize social responsibility.

Becoming dependent on suppliers comes at a cost to businesses. When suppliers know that a company depends on them, they usually demand payment in cash rather than credit. This may harm the company because it now has less funds for investments.

While CSR reports impress customers, they seem to antagonize suppliers – and that comes at a cost.

Why it matters

Previous research has shown that CSR disclosures can raise sales, but it has long been unclear whether these additional sales come from senior or newly acquired customers. Our work provides transparency that companies can operate to make decisions.

The findings are also of interest to lawmakers, regulators and corporate responsibility advocates who are debating whether to make CSR reporting mandatory.

The United States does not require companies to publish CSR reports, but some countries do. One of them is China, which in 2008 required all public companies to submit annual CSR reports, starting in 2009. This created the conditions for us to conduct an almost natural experiment.

Interestingly, according to reports from the US Securities and Exchange Commission considered as undertaking some form of corporate social responsibility mandatory reporting. In the absence of requirements, many US corporations will continue to voluntarily report their CSR.

In other words, the need for empirical evidence on the costs and benefits of CSR disclosure is greater than ever.

What’s next?

Increasing occurrence extreme weather phenomena AND weather-related fatalities and injuries piqued my interest in environmental responsibility. I have two ongoing research projects.

First, I operate information publicly reported by the company to measure environmental risks and actions taken to reduce them. Second, I examine how CEO incentives influence a firm’s environmental disclosure, actions, and spending—or lack thereof.

Research Brief is a miniature snapshot of intriguing academic work.