Too Much of a Good Thing? The Boomerang Effect of Firms’ Investments on Corporate Social Responsibility During Product Recalls

Journal of Management Studies, Forthcoming

Posted: 6 Aug 2019

See all articles by Alfred Z. Liu

Alfred Z. Liu

University at Albany, SUNY

Angela Xia Liu

UNC Charlotte

Rui Wang

Peking University

Sean Xu

Tsinghua University - School of Economics & Management

Date Written: August 2, 2019

Abstract

Prior research shows that a good record of corporate social responsibility (CSR) has an insurance-like effect on shareholder value in negative events. We posit and provide empirical evidence that excessive CSR activities can also cause a boomerang effect during negative events. In the setting of product recalls, we show that overinvestment in CSR has a boomerang effect on shareholder value when a company with excessive CSR activities announces a recall. Further analysis shows that the boomerang effect is exacerbated when institutional ownership is low or when customer awareness is high. Our study adds to the literature new insights on how CSR affects shareholder value during a reputation crisis.

Keywords: Corporate Social Responsibility, Overinvestment, Boomerang Effect, Product Recall

Suggested Citation

Liu, Alfred and Liu, Angela Xia and Wang, Rui and Xu, Sean, Too Much of a Good Thing? The Boomerang Effect of Firms’ Investments on Corporate Social Responsibility During Product Recalls (August 2, 2019). Journal of Management Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3431333

Alfred Liu

University at Albany, SUNY ( email )

Albany, NY 12222
United States

Angela Xia Liu (Contact Author)

UNC Charlotte ( email )

7046871794 (Phone)
7046871794 (Fax)

HOME PAGE: http://https://belkcollege.uncc.edu/directory/angela-xia-liu

Rui Wang

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Sean Xu

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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