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The Meaning of Large Companies‘ Corporate Social Responsibility for Enterprise Management, Economic Success and Social Balance in Globalising Europe

von Martin Schelberg, PhD

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[1.] Msc/Fragment 057 01 - Diskussion
Zuletzt bearbeitet: 2014-12-23 15:16:31 PlagProf:-)
BauernOpfer, Fragment, Gesichtet, Mackey et al 2007, Msc, SMWFragment, Schutzlevel sysop

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Untersuchte Arbeit:
Seite: 57, Zeilen: 1 ff.
Quelle: Mackey et al 2007
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What Is Socially Responsible Behavior?

A wide variety of definitions of Corporate Social Responsibility have been proposed in the literature. While these definitions vary in detail, many focus on voluntary firm actions designed to improve social or environmental conditions. This is the definition of corporate social responsibility we adopt here. Of course, within this broader definition, different stakeholders may have different preferences for specific socially responsible activities they would like to see their firm invest in. Moreover, these preferences may vary as the currency of social issues evolves over time. However, as long as a firm’s actions are consistent with this general definition of social responsibility - that is, as long as they are voluntary and designed to improve social or environmental conditions — they are considered socially responsible for the purposes of the model developed here. The specific decision-making context modelled here focuses on determining the total demand for investment opportunities in firms engaging in specific socially responsible activities; the current supply of those opportunities in the market; and whether current supply is less than, equal to, or greater than demand. In this sense, the opportunity to invest in a firm that is engaging in specific socially responsible activities can be thought of as a “product” that is sold by firms to potential equity investors as “customers.” Of course, equity holders as “customers” for opportunities to invest in socially responsible firms may vary in the kinds of corporate social responsible activities they would.

What Is Firm Performance?

A wide variety of definitions of firm performance have also been proposed in the literature. Both accounting and market definitions have been used to study the relationship between corporate social responsibility and firm performance. However, since most social responsibility scholars seek to understand the ways that socially responsible corporate activities can create or destroy shareholder wealth, market definitions of firm performance seem likely to be more appropriate than accounting definitions of firm performance in this context. In fact, in the model developed here, we adopt such a market definition of firm performance by focusing on how socially responsible corporate activities affect a firm’s market value. Market value is defined as the price of a firm’s equity multiplied by the number of its shares outstanding. Thus, our model addresses the following question: Supposing managers seek to maximize the market value of their firm in their decision making, will they ever choose to invest in socially responsible activities that reduce the present value of their firm’s cash flows? Of course, there is some controversy about the assumption that managers seek to maximize the market value of their firms in their decision making. Some have suggested that under conditions of uncertainty and imperfect information, managers cannot know, ex ante, how to maximize the market value of their firm. Others have suggested that managerial interests are often inconsistent with maximizing the value of a firm. However, some of these same authors argue that managers who fail to maximize the market value of their firm, ex post, may be subject to a variety of market sanctions, and, thus, the assumption that managers seek to maximize the value of their firm is a useful approximation. For our purposes here, whether or not managers can or do seek to maximize the value of their firm in their decision making is less important. Rather, we conduct a simple “thought experiment”: since corporate social responsibility scholars have been interested in understanding the economic consequences for a firm implementing socially responsible activities, we develop a model where managers are assumed to focus on maximizing the market value of their firm, and we examine the impact of socially responsible activities on this market value. In this sense, the assumption that managers seek to maximize the market value of their firm in their decision making provides a standard against which to evaluate the economic consequences of engaging in socially responsible activities that reduce the present value of a firm’s cash flows.

What Is Socially Responsible Behavior?

A wide variety of definitions of corporate social responsibility have been proposed in the literature (Margolis & Walsh, 2003). While these definitions vary in detail, many focus on voluntary firm actions designed to improve social or environmental conditions (Aguilera, Rupp, Williams, & Ganapathi, 2004; Davis, 1973; Wood, 1991a; 1991b; Wood & Jones, 1995; Waddock, 2004). This is the definition of corporate social responsibility we adopt here.

Of course, within this broader definition, different stakeholders may have different preferences for specific socially responsible activities they would like to see their firm invest in (Grass, 1999). Moreover, these preferences may vary as the currency of social issues evolves over time (Clarkson, 1995; Davis, 1973; Moskowitz, 1975; Wartick & Cochran, 1985; Wood, 1991a). However, as long as a firm’s actions are consistent with this general definition of social responsibility — that is, as long as they are voluntary and designed to improve social or environmental conditions — they are considered socially responsible for purposes of the model developed here.

The specific decision making context modeled here focuses on determining the total demand for investment opportunities in firms engaging in specific socially responsible activities, the current supply of those opportunities in the market, and whether current supply is less than, equal to, or greater than demand. In this sense, the opportunity to invest in a firm that is engaging in specific socially responsible activities can be thought of as a “product” that is sold by firms to potential equity investors as “customers.”2

[p. 819]

What Is Firm Performance?

A wide variety of definitions of firm performance have also been proposed in the literature (Barney, 2002). Both accounting and market definitions have been used to study the relationship between corporate social responsibility and firm performance (Orlitzky, Schmidt, & Rynes, 2003). However, since most social responsibility scholars seek to understand the ways that socially responsible corporate activities can create or destroy shareholder wealth, market definitions of firm performance seem likely to be more appropriate than accounting definitions of firm performance in this context (Margolis and Walsh, 2001). In fact, in the model developed here, we adopt such a market definition of firm performance by focusing on how socially responsible corporate activities affect a firm’s market value. Market value is defined as the price of a firm’s equity multiplied by the number of its shares outstanding.

Thus, our model addresses the following question: Supposing managers seek to maximize the market value of their firm in their decision making (Copeland et al., 1994; Friedman, 1962), will they ever choose to invest in socially responsible activities that reduce the present value of their firm’s cash flows?

Of course, there is some controversy about the assumption that managers seek to maximize the market value of their firms in their decision making. Some have suggested that under conditions of uncertainty and imperfect information, managers cannot know, ex ante, how to maximize the market value of their firm (Alchian, 1950). Others have suggested that managerial interests are often inconsistent with maximizing the value of a firm (Jensen & Meckling, 1976).

However, some of these same authors argue that managers who fail to maximize the market value of their firm, ex post, may be subject to a variety of market sanctions (Jensen & Meckling, 1976), and, thus, the assumption that managers seek to maximize the value of their firm is a useful approximation. For our purposes here, whether or not managers can or do seek to maximize the value of their firm in their decision making is less important. Rather, we conduct a simple “thought experiment”: since corporate social responsibility scholars have been interested in understanding the economic consequences for a firm implementing socially responsible activities, we develop a model where managers are assumed to focus on maximizing the market value of their firm, and we examine the impact of socially responsible activities on this market value. In this sense, the assumption that managers seek to maximize the market value of their firm in their decision making provides a standard against which to evaluate the economic consequences of engaging in socially responsible activities that reduce the present value of a firm’s cash flows.


2 Of course, equity holders as “customers” for opportunities to invest in socially responsible firms may vary in the kinds of corporate social responsible activities in which they would prefer to invest. [...]

Anmerkungen

The source is given on the preceding and on the following page. Note that one sentence has been copied incompletely: "firms may vary in the kinds of corporate social responsible activities they would" is reproduced without the proper ending "they would prefer to invest", which is found in the original.

Sichter
(SleepyHollow02), PlagProf:-)


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