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

Journal of Marketing, 73(6), 198-213, 2009

16 Pages Posted: 4 May 2013

See all articles by Xueming Luo

Xueming Luo

Temple University

CB Bhattacharya

European School of Management and Technology (ESMT); Katz Graduate School of Business University of Pittsburgh

Date Written: 2009

Abstract

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 pursuit 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 CSP impact 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).

Keywords: corporate social responsibility, stock risk, marketing-finance interface, advertising, research and development

JEL Classification: M21, M31, G00, G12, L86, M00, M30, M14

Suggested Citation

Luo, Xueming and Bhattacharya, Chitrabhanu, The Debate Over Doing Good: Corporate Social Performance, Strategic Marketing Levers, and Firm-Idiosyncratic Risk (2009). Journal of Marketing, 73(6), 198-213, 2009, Available at SSRN: https://ssrn.com/abstract=2260348

Xueming Luo (Contact Author)

Temple University ( email )

1810 N. 13th Street
Floor 2
Philadelphia, PA 19128
United States

HOME PAGE: http://www.fox.temple.edu/mcm_people/xueming-luo/

Chitrabhanu Bhattacharya

European School of Management and Technology (ESMT) ( email )

Schlossplatz 1
10117 Berlin
Germany

Katz Graduate School of Business University of Pittsburgh ( email )

Pittsburgh, PA
United States
4123834212 (Phone)

HOME PAGE: http://www.business.pitt.edu/faculty/bhattacharya

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