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An Institutional Theory Approach to the Evolution of the Corporate Social Performance – Corporate Financial Performance Relationship

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  • Jacob Brower
  • Peter A. Dacin

Abstract

In the present study, we integrate research from the dynamic institutional theory literature to develop a set of theory‐driven hypotheses regarding how the institutionalization of corporate social performance (CSP) in the organizational field over the period 1991–2008 impacts the CSP‐ corporate financial performance (CFP) relationship for firms in the marketplace. The results of our panel time series and dynamic linear estimation models suggest that early CSP adopters are more likely to experience both greater firm profitability and increased stock market valuation as a result of their higher CSP levels. However, they also tend to incur more firm‐idiosyncratic risk for being ahead of the market’s CSP expectations. We also demonstrate that the significant rise in CSP adoption and activities over time, as CSP has become institutionalized, has resulted in CSP becoming a weaker driver of both firm profitability and stock market valuation.

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  • Jacob Brower & Peter A. Dacin, 2020. "An Institutional Theory Approach to the Evolution of the Corporate Social Performance – Corporate Financial Performance Relationship," Journal of Management Studies, Wiley Blackwell, vol. 57(4), pages 805-836, June.
    • Handle: RePEc:bla:jomstd:v:57:y:2020:i:4:p:805-836
    DOI: 10.1111/joms.12550
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