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Corporate social responsibility and competitive advantage - hawn ioannou 2016

Q: How do internal and external CSR actions contribute to a company's market value, according to the study?

The study posits that: Internal Actions : Facilitate structural changes, fulfilling expectations of internal stakeholders. External Actions : Sought for public endorsement, targeting outside audiences. Both types enhance legitimacy and reduce informational asymmetry, thus supporting higher market value.

31 important questions on Corporate social responsibility and competitive advantage - hawn ioannou 2016

What is the focus of the research by Hawn and Ioannou regarding corporate social responsibility (CSR)?

The research investigates the influence of the interplay between a firm's external and internal CSR actions on its market value. Key points include:

Clear distinction between internal CSR actions (structural, inward-focused) and external CSR actions (communication, outward-focused).
Joint contribution: Both types together build intangible resources and increase market value.
Gap effect: A wider gap between internal and external actions reduces market value. Internal actions deliver full benefits only when externally communicated.
Empirical finding: Firms generally take more internal than external CSR actions (“do more, communicate less”).

How do internal and external CSR actions contribute to a company's market value, according to the study?

The study posits that:

Internal Actions: Facilitate structural changes, fulfilling expectations of internal stakeholders.
External Actions: Sought for public endorsement, targeting outside audiences.
Both types enhance legitimacy and reduce informational asymmetry, thus supporting higher market value.

What is the significance of the gap between internal and external CSR actions as presented in the research findings?

The gap is critical as:

It can undermine a firm's credibility with investors.
Larger gaps indicate a disconnect, reducing perceived transparency.
Results in negative implications on market value, especially if internal actions are not publicly communicated.

What methodology did Hawn and Ioannou use to confirm their hypotheses about CSR actions and market value?

They employed:

Panel regressions to analyze data.
A sample of 1,492 firms across 33 countries from 2002 to 2008.
Assessed the impact of the gap on market value specific to natural resources, extractives, and CSR-intensive industries.

What are the key contributions of the article by Hawn and Ioannou to the CSR literature?

The article contributes by:

Integrating CSR literature with neo-institutional theory insights.
Conceptualizing the interplay dynamics between external and internal CSR actions.
Introducing a market value approach to explore CSR actions' impact on firm performance and resolving linkage ambiguities.

What findings did the researchers conclude regarding firms' CSR actions and market value?

The findings include:

Firms generally have more internal CSR actions than external ones.
The sum of internal and external actions is positively linked to market value.
A wider gap negatively impacts market value, indicating misalignment issues in CSR communication.

What does the research by Hawn and Ioannou (2016) primarily explore?

The study investigates the effects of the interplay between a firm’s external and internal actions on market value, specifically focusing on corporate social responsibility (CSR).

It distinguishes between external and internal CSR actions.
Both types jointly contribute to acquiring intangible firm resources.
A larger gap between these actions negatively impacts market value.

What distinguishes internal from external CSR actions according to the research?

Internal CSR actions focus on building structures and capabilities within the firm, while external actions aim at gaining public legitimacy from outside constituents.

Internal actions target stakeholders within the firm.
External actions engage stakeholders outside the organization.
The study emphasizes the role of legitimacy and accountability.

How do firms typically accumulate intangible CSR resources?

Intangible CSR resources are developed through both internal and external actions, although firms often execute more internal actions, which are less communicated.

Internal actions concern structural changes and meeting stakeholder expectations.
External actions are public and visible, assisting in gaining legitimacy.
Each type of action supports legitimacy and reduces information asymmetry.

What are the potential consequences of a wider gap between internal and external CSR actions?

A larger gap can lead to negative market value implications as the firm's credibility may suffer.

Stakeholders may perceive a lack of transparency.
The investor community could undervalue the firm's CSR efforts.
Firms engaging in greater external actions without sufficient internal changes risk “green-washing."

What does the study find about the average CSR actions undertaken by firms?

On average, firms engage more in internal CSR actions than external ones.

This finding contradicts common beliefs about CSR practices.
Firms demonstrate a greater commitment to internal actions while communicating less externally.
The communication of internal actions is critical for realization of benefits.

How does the paper contribute to the understanding of CSR literature?

The article integrates CSR literature with organizational legitimacy principles from neo-institutional theory.

It characterizes the interplay between internal and external actions.
It uses a market value approach from innovation economics to clarify CSR's impact on performance.
This helps resolve ambiguity in linking social and financial performance.

What hypothesis is proposed regarding the sum of CSR actions and market value?

The first hypothesis suggests that an increase in both internal and external CSR actions will enhance a firm’s market value.

Together, these actions are believed to promote legitimacy.
Improvements in CSR practices lead to better perceptions by investors.
This indicates a positive relationship between CSR actions and market value.

What is the relationship between legitimacy and corporate survival according to the research?

Legitimacy is crucial for an organization’s survival and growth in the market.

It relates to stakeholders perceiving actions as socially acceptable.
Organizations gain competitive advantages through legitimacy.
Internal actions signal conformity to established norms, enhancing legitimacy.

What methodological approach was used in the study's research?

The researchers employed empirically supported panel regressions to confirm their hypotheses.

Data was gathered from 1,492 firms across 33 countries.
The analysis spanned from 2002 to 2008, focusing on market-value equations.
Results demonstrated the influence of the gap variable on market value.

What were the results regarding the impact of the gap in CSR actions on market value?

The findings indicate that a wider gap between internal and external actions negatively affects market value.

Firms with more internal actions and less external communication face valuation challenges.
Conversely, firms with excessive external actions without internal support risk reputational harm.
The negative association is significant in natural resources and CSR-intensive industries.

Why are CSR actions considered 'invisible resources'?

CSR actions are termed “invisible resources” due to their non-material contribution to competitive advantage.

They cannot be solely acquired through financial investment.
They require time and significant organizational change for development.
These resources generate various benefits simultaneously, enhancing firm capabilities.

How does the communication of CSR actions influence stakeholder perceptions?

Effective communication of CSR actions improves stakeholder perceptions and firm legitimacy.

It enhances transparency and reduces information asymmetry.
Stakeholders’ trust increases with adequate external communication.
Lack of communication can lead to skepticism and decreased market valuations.

What types of industries see a pronounced impact of the gap on market value?

The gap between internal and external CSR actions has more pronounced effects in:

Natural resources and extractives industries.
CSR-intensive industries.
Misalignment in these sectors can significantly decrease market valuations.

In the context of CSR, what are internal actions primarily focused on?

Internal actions are oriented towards achieving structural changes and developing organizational capabilities.

These actions involve long-term investments and core practice adaptations.
They address stakeholder expectations within the firm’s boundaries.
High levels of internal change can introduce certain risks.

What role do external actions play in the context of CSR?

External actions are instrumental in seeking public endorsement and gaining legitimacy from outside stakeholders.

These actions include visible initiatives that communicate the firm's commitments.
They contribute to accumulating social capital and improving stakeholder awareness.
External communication enhances public image and investor confidence.

How do internal and external actions interact according to the study?

The study explains that firms engage in both internal and external actions simultaneously but must often choose one over the other.

This interaction can either increase or decrease discrepancies in their CSR actions.
Effective alignment between both actions enhances the overall impact on market value.
Misalignment, however, can lead to credibility issues for the firm.

What does legitimacy imply within the context of a firm's actions?

Legitimacy refers to the extent to which an organization's actions are deemed appropriate by societal standards.

It indicates compliance with accepted norms and values.
Achieving legitimacy influences firm sustainability and stakeholder support.
The perception of legitimacy can change based on the firm's action alignment.

What is Tobin's q, and how does it relate to market value?

Tobin's q is a measure of a firm's market value, reflecting its market capitalization relative to its asset value.

It is calculated using market capitalization, total assets, and equity book value.
High Tobin's q indicates strong market value, whereas low values suggest perceived shortcomings in performance.

What is the key takeaway from Hawn and Ioannou's research regarding firms' CSR actions?

The central finding illustrates that firms generally perform more internal CSR actions without adequate external communication.

A significant gap between internal and external actions can hinder the realization of full benefits.
Effective communication of CSR efforts to stakeholders enhances market value.
Firms' reputations may suffer if internal actions are undervalued.

How does a firm's failure to align internal and external actions affect capital markets?

Misalignment may lead to a lack of recognition of any value created by CSR actions in capital markets.

Investors may not fully appreciate the impact of internal CSR efforts.
The perception of being non-transparent can lead to lower investor confidence.
Hence, firms risk losing essential capital support.

What does the paper suggest about the communication dynamics between internal and external CSR actions?

The research highlights that communication dynamics are crucial in demonstrating the impact of CSR efforts.

Reporting internal actions accurately boosts external legitimacy.
An effective communication strategy can foster better stakeholder relationships.
Timing of communications matters in conveying progress and gains in CSR initiatives.

What implications do the study's findings hold for CSR practitioners?

Practitioners should aim for alignment between internal and external CSR initiatives to maximize market value.

Prioritizing transparent communication is vital to improving firm legitimacy.
Understanding the interaction between CSR actions can guide strategic decisions.
Effective external communication of CSR efforts enhances overall stakeholder trust.

How do internal and external CSR actions interplay to affect market value, and what is Hypothesis 1?

Firms take both action types simultaneously, but choices may increase the gap or the sum.

Timing matters:

Prior internal actions → create structures & credibility.
Current external actions → communicate progress/results, valued by investors.

Together they:

Enhance legitimacy.
Reduce information asymmetry between firms and investors.

Hypothesis 1: The greater the sum of prior internal + current external actions, the higher the firm’s market value.

What are internal and external CSR actions, and why are they considered “invisible resources” for firm competitiveness?

CSR as invisible resources:

Cannot be bought with money alone.
Time-consuming to develop.
Can be used in multiple ways and yield multiple benefits.

Internal CSR actions: Structural changes, inward-focused, e.g., policies, organizational culture, employee initiatives. → Build capabilities but may reduce flexibility and involve risk.

External CSR actions: Public/visible actions, e.g., reports, endorsements, communication, symbolic practices. → Build legitimacy via media, networks, and stakeholders, and accumulate social capital.

Both internal and external actions generate legitimacy, essential for survival, growth, and profitability.

What is the impact of a misalignment (gap) between internal and external CSR actions on a firm’s market value, and what does Hypothesis 2 state?

Misalignment risks:

If internal > external: CSR efforts are not communicated → investors cannot recognize their value → reduced credibility and lower valuation.
If external > internal: firm risks being seen as greenwashing → short-term visibility but long-term loss of trust and valuation.

Stakeholder reaction: Both scenarios create perceptions of lack of transparency or credibility, leading stakeholders and markets to withdraw support.

Hypothesis 2: The wider the gap between a firm’s current external and prior internal CSR actions, the lower its market value.

The question on the page originate from the summary of the following study material:

business level strategy

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