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Can Investors Be Harmed by Being Socially Responsible? Kent State Professor Shares Research
Groening’s article, “Investor reaction to positive and negative corporate social events,” seeks to provide an understanding under of the circumstances investors may view corporate social responsibility in a negative light.
Dr. Pamela Grimm, the department of Marketing and Entrepreneurship chairperson, appreciates Groening’s efforts in the field of marketing research on behalf of the marketing department.
“Dr. Groening has made an important contribution to the area of corporate social responsibility by looking at the match or mismatch between investor reaction and corporate social events that influence other stakeholders,”
Groening said he was originally trying to determine what types of corporate social responsibility added value to a firm and what types of irresponsibility harmed firms, but soon realized the exact opposite could happen. Firms could actually be hurt by being socially responsible, while being helped by being irresponsible, so he needed to find out why.
“If you keep devoting resources to the same activity or cause, you get diminishing returns, no matter how good the activity might be,” Groening said. “For example, if you give your girlfriend flowers every day, by the tenth day she probably isn’t going to be as impressed as she was the first time. This holds true with firms’ investment in the same socially responsible activities over and over again. They might invest $10,000 in community activities and increases their standing with the community by 20 percent, but that doesn’t mean another investment of $10,000 will give them the same result. Typically, it results in a smaller outcome.”
Groening’s research revealed that nearly half of the time a firm’s societal actions benefitted stakeholders, investors actually reduced the firm’s value. The results indicate that measuring stakeholder satisfaction at its fullest potential may be a good tool in determining when stakeholder and investor reactions will be the same.
“One way for firms to know when they have done enough is to constantly monitor responses to their social activities,”
Page Updated Last on: Nov 01, 2013