Corporate Social Responsibility, Customer Satisfaction, and Market Value

Although prior research has addressed the influence of corporate social responsibility (CSR) on perceived customer responses, it is not clear whether CSR affects market value of the firm. This study develops and tests a conceptual framework, which predicts that (1) customer satisfaction partially mediates the relationship between CSR and firm market value (i.e., Tobin’s q and stock return), (2) corporate abilities (innovativeness capability and product quality) moderate the financial returns to CSR, and (3) these moderated relationships are mediated by customer satisfaction. Based on a large-scale secondary dataset, the results show support for this framework. Interestingly, it is found that in firms with low innovativeness capability, CSR actually reduces customer satisfaction levels and, through the lowered satisfaction, harms market value. The uncovered mediated and asymmetrically moderated results offer important implications for marketing theory and practice. In today’s competitive market environment, corporate social responsibility (CSR) represents a high-profile notion that has strategic importance to many companies. As many as 90% of the Fortune 500 companies now have explicit CSR initiatives (Kotler and Lee 2004; Lichtenstein et al. 2004). According to a recent special report by BusinessWeek (2005a, p.72), large companies disclosed substantial investments in CSR initiatives (i.e., Target’s donation of $107.8 million in CSR represents 3.6% of its pretax profits, with GM $51.2 million at 2.7%, General Mills $60.3 million at 3.2%, Merck $921million at 11.3%, HCA $926 million at 43.3%). By dedicating everincreasing 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” (Smith 2003). Importantly, along with increasing media coverage of CSR issues, companies themselves are also taking direct and visible steps to communicate their CSR initiatives to various stakeholders including consumers. A decade ago, Drumwright (1996) observed that advertising with a social dimension was on the rise. The trend seems to continue. Many companies, including the likes of Target and Walmart, have funded large national ad campaigns promoting their good works. The October 2005 issue of In Style magazine alone carried more than 25 “cause” ads. Indeed, consumers seem to be taking notice: whereas in 1993 only 26% of individuals surveyed by Cone Communications could name a company as a strong corporate citizen, by 2004, the percentage surged to as high as 80% (BusinessWeek 2005a). Motivated, in part, by this mounting importance of CSR in practice, several marketing studies have found that social responsibility programs have a significant influence on a number of customer-related outcomes (Bhattacharya and Sen 2004). More specifically, based on lab experiments, CSR is reported to directly or indirectly impact consumer product responses