Financial volatility and public scrutiny as institutional determinants of financial industry firms' CSR

This article examines the relationship between the global financial crisis and Corporate Social Responsibility reporting of financial services firms. We challenge the view in existing studies that firms, when faced with economic hardship, tend to jettison CSR commitments. Instead, and building on insights regarding the institutional determinants of CSR, we argue that firms are constrained in their ability to abandon CSR by the extent to which they are subject to intense public scrutiny by regulators and the news media. We test this argument in the context of the European sovereign debt crisis drawing on a unique dataset of 170 firms in 15 different countries over a six-year period. Controlling for a battery of alternative explanations and comparing financial service providers to firms operating in other economic sectors, we find considerable evidence supporting our argument. Rather than abandoning CSR during times of economic hardship, financial industry firms ramp up their CSR commitments in order to manage their public image and foster public trust in light of intense public scrutiny.