Corporate social responsibility (CSR) and corporate diversification: do diversified production firms invest more in CSR?

ABSTRACT

A diversification strategy increases the range of stakeholder demands and social issues related to a firm’s operation. Examining the consequence of production diversification strategy at a broader level, not only (short-term) financial performance but also long-term performance, as proxied by corporate social responsibility (CSR), is surprising. We show that a firm’s production diversification is associated with stronger engagement in CSR, particularly for unrelated diversification. And the higher level of diversification is, the more investment in CSR. Our findings lead to the interesting questions regarding diversification discount and the value of unrelated diversification, which has often been criticized because of its negative impact on short-term financial performance.

KEYWORDS:

• Corporate social responsibility
• product diversification
• related diversification
• unrelated diversification
• stakeholder theory

JEL CLASSIFICATION:

• G30
• M14

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

The authors wish to acknowledge the valuable support provided by the Humanity and Social Science Foundation of Ministry of Education of China [15YJC630143], China Postdoctoral Science Foundation [2015M582476, 2015M582390] and the Fundamental Research Funds for the Central Universities of South China University of Technology [2015BS14].