Corporate Social Responsibility, Customer Satisfaction, and Market Value

• Published in: Journal of marketing 2006-10, Vol.70 (4), p.1-18
• Main Authors: Luo, Xueming, Bhattacharya, C.B
• Format: Article
• Language: English
• Subjects: Corporate responsibility; Customer satisfaction; Social responsibility; Studies
• ISSN: 0022-2429; 1547-7185
• DOI: 10.1509/jmkg.70.4.1

In today's market environment, corporate social responsibility (CSR) represents a high-profile notion that has strategic importance to many companies. By dedicating ever-increasing amounts to cash donations, in-kind contributions, cause marketing, and employee volunteerism programs, companies are acting on the premise that CSR is not merely the "right thing to do" but also "the smart thing to do." This research investigates the linkage between CSR and firm market value with a longitudinal, archival data set. Given that firms are not the same in their execution, support, and exploitation of CSR initiatives in the marketplace, the authors predict that companies may generate different (i.e., positive, nonsignificant, and negative) market returns from CSR under different conditions. Specifically, this article asks the following questions: (1) Under what conditions do CSR initiatives result in positive financial performance? and (2) Does customer satisfaction matter in the relationship between CSR and firm performance? The authors develop and test a conceptual model that proposes that CSR initiatives enable firms to build a base of satisfied customers, which in turn contributes positively to market value. Based on multiple secondary data sets (e.g., Fortune's "America's Most Admired Companies," the American Customer Satisfaction Index, Compustat) that include ratings of large companies and structural equation modeling methodologies, the results show support for the CSR customer satisfaction firm market value causal linkages. Specifically, the authors find that customer satisfaction partially mediates the relationship between CSR and market value. Furthermore, they establish the boundary conditions under which firms may derive positive or negative market value from CSR. Firms that have better inside-out corporate abilities (i.e., product quality and innovativeness) to begin with tend to generate more market value from outside-in strategic initiatives (i.e., CSR programs). Conversely, firms that exhibit poorer corporate abilities may find that CSR actually harms customer satisfaction and, because of the lowered satisfaction, decreases their stock performance. The finding that CSR contributes positively to market value suggests that managers can obtain competitive advantages and reap more financial benefits from investing in CSR. However, the data also reveal a previously neglected "dark side" of CSR. That is, CSR actually reduces customer satisfaction levels in f