Sending corporate social responsibility signals; What organizational characteristics must be met?
| Autor | Carrasco, Pablo Ortega |
Introduction
Companies are increasingly aware of the impact of their activities on society (Hahn & Kunen, 2013) as a large amount of information is generated about how they act and most of that information is publicly available and free to access online. However, there is also information that is private and that generates a certain asymmetry between those who possess it and those who could make more rational decisions if they had it (Crisostomo & Freire, 2015; Stiglitz, 2002). As a result, a significant percentage of companies that implement corporate social responsibility (hereinafter CSR) initiatives decide to publish their sustainability reports as a means of publicizing these CSR practices to the general public and thereby legitimizing their actions in response to social rules and stakeholders' expectations (Aldaz, Alvarez, & Calvo, 2015; Cunha & Moneva, 2018; Deegan & Gordon, 1996; Guthrie & Parker, 1989; Woerkom & Zeijl-Rozema, 2017). CSR initiatives consist of "policies and practices of corporations that reflect the business responsibility for the wider societal good" whose "precise manifestation and direction of this responsibility lie at the discretion of the corporation" (Matten & Moon, 2008, p. 5). Following this definition, this work deals with CSR signals, understood as the voluntary and intentional disclosure of information about the social and environmental behavior and/or performance of a company.
Regarding CSR signals, prior literature has examined the relationship between several organizational characteristics in isolation and the disclosure of CSR practices. For instance, Aldaz et al. (2015) showed that a positive relationship exists between the disclosure of nonfinancial reports and the company's reputation. However, prior approaches have paid no attention to the effect of a combination of various determinants and have failed to consider that companies that usually send CSR signals differ in many other organizational characteristics from those that do not send CSR signals. This could lead to unspecified models that ignore the effect of complementary organizational mechanisms on the sending of CSR signals. At this point, a question arises: What characteristics must companies fulfil so that they would decide to communicate to society their social and environmental commitment through CSR signals? Drawing upon Signaling Theory and Neo-Institutional Theory, the main aim of this study is to examine whether the sending of CSR signals by companies to society through CSR reports under the GRI standard is related to certain organizational characteristics that can be combined, such as company size, profitability, corporate reputation, ownership structure (the degree of ownership concentration), and the level of pollution in the sector in which the company operates. To analyze these relationships, a sample of 95 Spanish companies indexed in MERCO, a CSR reputation ranking, was treated empirically through binary logistic regression as well as qualitative comparative analysis (hereinafter, QCA). The QCA technique is especially appropriate to analyze how different combinations of organizational characteristics can determine the sending of CSR signals, since it allows us to know which elements of a configuration are connected to outcomes (Fiss, 2007; Ragin, 1987).
1 Literature Review
1.1 theoretical approaches to disclosing CSR information
This study uses two theoretical frameworks to highlight the importance of making company CSR information public: Signaling Theory and Neo-Institutional Theory.
Signaling Theory (Spence, 1973) consists of a theoretical approach that explains that in the presence of two parties (individuals or organizations) the signaler can decide whether to communicate (signal) or not the information that they have, and the receiver must choose how to interpret that information (Connelly, Certo, Ireland, & Reutzel, 2011). The theoretical approach has been widely used in various academic fields in the area of management, such as human resources management (Ehrhart & Ziegert, 2005; Gomes & Neves, 2011), strategy management (Certo, 2003; Park & Mezias, 2005), and consumer behavior (Cheung, Xiao, & Liu, 2014; Mavlanova, Benbunan-Fich, & Lang, 2016). The five key concepts of Signaling Theory are: (1) the signalers are internal people (i.e., employees, managers, etc.) who have information about individuals, products, or organizations that is not available to agents outside the organization (Spence, 1973; Ross, 1977); (2) the signal is the information that is sent out (Certo, 2003); (3) the receiver receives the information (signal) emitted by the signaler (Connelly et al., 2011); (4) the feedback (Gupta, Govindarajan, & Malhotra, 1999) is the information sent about the success or effectiveness of the communication process; and finally (5) the signaling environment is the framework in which the previous four concepts are carried out sequentially (Connelly et al., 2011). Figure 1 shows how these elements are interconnected.
Among these five elements of Signaling Theory, this work focuses on the firm's signals, specifically the use of CSR signals. The study defines CSR signals as information regarding the social and environmental behavior and/or performance of a company that decides to transmit it voluntarily and intentionally. The concept that companies can signal their ethical nature through the development and implementation of CSR initiatives began becoming popular in the early nineties (Fombrun & Shanley, 1990). For instance, Fombrun and Shanley (1990) argued that actions such as donating a certain amount of money to charities and public foundations can lead to a company being considered more socially responsible and this would have a positive impact on its reputation. In fact, Zerbini (2017) sets out an instrumental vision of CSR initiatives as signals that a company sends to society with the aim of revealing certain actions not known by the market, in order to obtain higher performance (Connelly et al., 2011). In addition, Spence (2002) believes that CSR actions can be used by firms to avoid the problem of adverse selection (1).
Prior literature has highlighted that one of the reasons why some firms decide to send signals about their CSR practices is to be able to influence investors (positively) and rating agencies that participate in the elaboration of stock indexes of socially responsible companies, such as the Down Jones Sustainability Index or the Financial Times Stock Exchange 4 Good (Hahn & Lulfs, 2014). At the same time, companies and other investors often use such sustainability indexes in their decision making so that the visibility of a CSR signal is highly effective (Connelly et al., 2011; Hahn & Lulfs, 2014). Thus, Signaling Theory is an appropriate theoretical approach to explain the importance of a company's disclosure (i.e., signaler) of CSR reports (i.e., signal) in order to convince the audience (i.e., receiver), who could be potential customers, suppliers, investors, governments, or society in general, of the company's social and environmental commitment. That audience could demand the practice be implemented (i.e., feedback), determined also by the context in which the company operates (i.e., signaling environment). Figure 1 shows (in grey font) how those elements are linked to each other.
In addition to Signaling Theory, the theoretical approach of Neo-Institutionalism also serve as an adequate framework to explain what underlies the disclosure of a company's CSR practices since Neo-Institutional Theory attempts to explain why companies seek the homogenization of organizational processes (DiMaggio & Powell, 1983). Matten and Moon (2008) reflected on the tendency toward the homogenization of institutional environments worldwide and indicated "how regulative, normative and cognitive processes lead to increasingly standardized and rationalized practices in organizations across industries and national boundaries" (Matten & Moon, 2008, p.10). That process of similarity among organizations is defined as isomorphism by Institutional Theory (DiMaggio & Powell, 1983; Greenwood & Hinings, 1996). This isomorphism implies that, due to their powerful influence, institutional forces tend to unify the business environment and make all companies behave equally (Shabana, Buchholtz, & Carroll, 2017). From this theoretical perspective, the sending of CSR signals could be labelled as a mimetic isomorphic practice. Mimetic isomorphism refers to how organizations seek to imitate those organizational practices or procedures that have been successful (DiMaggio & Powell, 1983). According to King, Lenox, and Terlaak (2005), there are two types of actions to address institutional pressures and increase legitimacy: internal actions aiming to achieve structural change by adopting trusted and proven strategies within the industry, and external actions aimed at gaining organizational endorsement from external constituents. Thus, following King et al. (2005), as a mimetic isomorphic practice, CSR signals could be seen as internal and external actions carried out at the same time since (1) the disclosure of CSR information could transform processes and strategies within the company and (2) it could legitimate the activity of the company for its stakeholders. The huge increase in the voluntary publication of non-financial or CSR reports by companies exemplifies this mimetic isomorphism: through this disclosure, a CSR signal is sent with the approval of the institutions that promote CSR practices (Kolk, 2005). However, nowadays, in the business as well as the social context, the disclosure of non-financial information has become an essential practice to such an extent that on certain occasions it has ceased to be an example of mimetic isomorphism and has become coercive isomorphism. Coercive isomorphism refers to actions in response to "political impositions, legal rules, and state...
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