The Effect of Product Diversification on Corporate Social Performance in the Non-Renewable Energy Industry: Exploring the moderating effects of host country development and the Sustainable Development Goals
Aim: Building upon stakeholder and institutional theory, this paper investigates the relationship between product diversification and corporate social performance (CSP), thereby attempting to make essential contributions to the current literature. Based on an extensive literature review, it was expected that related, unrelated and total product diversification are positively related to CSP. Moreover, it was hypothesized that the exposure to weak institutional host country environments negatively affects the relationship between diversification and CSP, and that the Sustainable Development Goals (SDGs) have a positive effect on the relationship.
Design / Research methods: The sample selected for this research is the non-renewable energy industry, since the industry shows great divergence in terms of corporate social responsibility (CSR) performance. In addition, the industry is highly susceptible to regulatory changes, while the Sustainable Development Goals have an enormous focus on the reliability and sustainability of energy, making it a highly relevant industry to study. This study analyzed 40 a 40 non-renewable energy firms over a time frame of seven years, by using OLS regression.
Conclusions / findings: The results reveal that unrelated diversification is positively related to CSP, while the other forms of diversification show insignificant results. Contrary to expectations, the Sustainable Development Goals negatively affect the relationship between product diversification and CSP, while the moderating effect of exposure to weak institutional environments is insignificant.
Originality / value of the article: Research on the relationship between product diversification on corporate financial performance is well-established, but the way in which product diversification influences a firm’s behavior towards stakeholder demands and social concerns remains largely unexplored. Accordingly, the results of this study challenge existing theories while adding more context to the existing relationship, and in turn provide promising avenues for future research.
Bansal P. (2005), Evolving sustainably. A longitudinal study of corporate sustainable development,
„Strategic Management Journal”, vol . 26 no. 3, pp. 197-218.
Barrena Martínez J., Lopéz Fernández M., Miguel P., Romero Fernández P.M. (2016), Corporate
social responsibility. Evolution through institutional and stakeholder perspectives, „European Journal
of Management”, vol. 25 no. 1, pp. 8-14.
Baughn C.C., Bodie N.L., McIntosh J.C. (2006), Corporate social and environmental responsibility in Asian countries and other geographic regions, paper presented at the Conference on Corporate Responsibility: Agendas for Asia, Kuala Lumpur, Malaysia.
Baumann-Pauly D., Wickert C., Spence L.J., Scherer A.G. (2013), Organizing corporate social responsibility in small and large firms: size matters, “Journal of Business Ethics”, vol. 115 no. 4, pp. 693-705.
Baysinger B., Hoskisson R.E. (1989), Diversification strategy and R&D intensity in multiproduct firms, “The Academy of Management Journal”, vol. 32 no. 2, pp. 310-332.
Brammer S., Millington A. (2008), Does it pay to be different? An analysis of the relationship between corporate social and financial performance, “Strategic Management Journal”, vol. 29 no. 12, pp. 1325-1343.
Brammer S.J., Pavelin S., Porter L.A. (2006), Corporate social performance and geographical diversification, “Journal of Business Research”, vol. 59 no. 9, pp. 1025-1034.
Busco C., Granà, F., Izzo M.F. (2018), Sustainable development goals and integrated reporting, 1st ed. Routledge, London.
Business & Sustainable Development Commission (2017), Better business, better world: The report
of the Business & Sustainable Development Commission, http://report.businesscommission.org/uploads/BetterBiz-BetterWorld.pdf [17.09.2019].
Campbell J.T., Eden L., Miller S.R. (2012), Multinationals and corporate social responsibility in host countries. Does distance matter?, “Journal of International Business Studies”, vol. 43 no. 1, pp. 84-106.
Castañer X., Kavadis N. (2013), Does good governance prevent bad strategy? A study of corporate governance, financial diversification, and value creation by French corporations, 2000-2006, „Strategic
Management Journal”, vol. 34, pp. 863-876.
Chan L.I. (2014), Corporate social responsibility of multinational corporations, University of Washington, Global Honors Theses.
Chen C., Yu C.J. (2012), Managerial ownership, diversification, and firm performance. Evidence from an emerging market, “International Business Review”, vol. 21 no. 3, pp. 518-534.
Cheng S., Lin K.Z., Wong W. (2016), Corporate social responsibility reporting and firm performance: evidence from China, “Journal of Management & Governance”, vol. 20, pp. 503-523.
Chetty S., Eriksson K., Lindberg J. (2006), The effect of specificity of experience on a firm’s perceived importance of institutional knowledge in an ongoing business, “Journal of International Business Studies”, vol. 37 no. 5, pp. 699-712.
Choi H., Moon D. (2016), Perceptions of corporate social responsibility in the capital market, “The Journal of Applied Business Research”, vol. 32 no. 5, pp. 1507-1518.
Christmann P. (2004), Multinational companies and the natural environment. Determinants of global environmental policy standardization, “Academy of Management Journal”, vol. 47 no. 5, pp. 747-760.
DiMaggio P.J., Powell W.W. (1983), The Iron Cage revisited. Institutional isomorphism and collective rationality in organizational fields, “American Sociological Review”, vol. 48 no. 2, pp. 147-160.
Dormann C., Elith J., Bacher S., Buchmann C., Carl G., Carré G., Marquéz J., Gruber B., Lafourcade B., Leitão P., Münkemüller T. (2013), Collinearity. A review of methods to deal with it and a simulation study evaluating their performance, “Ecography”, vol. 36 no. 1, pp. 27-46.
Dormann C., Griffin M.A. (2015), Optimal time lags in panel studies, “Psychological Methods”, vol. 20 no. 4, pp. 489.
Drempetic S., Klein C., Zwergel B. (2019), The influence of firm size on the ESG score. Corporate sustainability ratings under review, “Journal of Business Ethics”, no. 167, pp. 1-28.
Freeman R.E. (1984), Strategic management. A stakeholder approach, Pitman, Boston.
Frynas J.G. (2009), Corporate social responsibility in the oil and gas sector, “Journal of World Energy Law & Business”, vol. 2 no. 3, pp. 178-195.
Griffin J.J., Mahon J.F. (1997), The corporate social performance and corporate financial performance debate. Twenty-five years of incomparable research, “Business & Society”, vol. 36 no. 1, pp. 5-31.
Hasan I., Kobeissi N., Liu L., Wang H. (2018), Corporate social responsibility and firm financial performance. The mediating role of productivity, “Journal of Business Ethics”, vol. 149 no. 3, pp. 671-688.
Hawn O., Kang H.G. (2013), The market for Corporate Social Responsibility (CSR). How industry structure determines CSR, https://ssrn.com/abstract=2380641 or http://dx.doi.org/10.2139/ssrn.2380641 [17.09.2020].
Hillman A.J., Wan W.P. (2005), The determinants of MNE subsidiaries’ political strategies. Evidence of institutional duality, “Journal of International Business Studies”, vol. 36, pp. 322-340.
Hitt M.A., Hoskisson R.E., Kim H. (1997), International diversification. Effects on innovation and firm performance in product-diversified firms, “The Academy of Management Journal”, vol. 40 no. 4, pp. 767-798.
Hoskisson R.E., Hitt M.A., Johnson R.A. (1993), Construct validity of an objective (entropy) categorical measure of diversification strategy, “Strategic Management Journal”, vol. 14, pp. 215-235.
Ioannou I., Serafeim G. (2012), What drives corporate social performance ? The role of nation-level institutions, “Journal of International Business Studies”, vol. 43 no. 9, pp. 834-864.
Jacquemin A.P., Berry C.H. (1979), Entropy measure of diversification and corporate growth, “The Journal of Industrial Economics”, vol. 27 no. 4, pp. 359-369.
Jackson G., Apostolakou A. (2010), Corporate social responsibility in Western Europe. An institutional mirror or substitute?, “Journal of Business Ethics”, vol. 94 no. 3, pp. 371-394.
Jongsma R. (2020), The effect of product diversification on Corporate Social Performance in the non-renewable energy industry. Exploring the moderating effects of host country development and Sustainable Development Goals. Internal publication.
Kacperczyk A. (2009), With greater power comes greater responsibility? Takeover protection and corporate attention to stakeholders, “Strategic Management Journal”, vol. 30 no. 3, pp. 261-285.
Kang J. (2013), The relationship between corporate diversification and corporate social performance, “Strategic Management Journal”, vol. 34, pp. 94-109.
Keig D.L. (2013), Formal and informal institutional influences on multinational enterprise social responsibility. Two empirical studies, “Dissertations, Theses and Capstone Projects”, Paper 537.
Kostova T., Roth K. (2002), Adoption of an organizational practice by subsidiaries of multinational corporations. Institutional and relational effects, “Academy of Management Journal”, vol. 45, no. 1, pp. 215-233.
Li Q., Wang W., Lou Y., Cheng K., Yang X. (2016), Diversification and corporate performance. Evidence from China’s listed energy companies, “Sustainability”, vol. 8 no. 10, pp. 1-17.
Liang H., Renneboog L. (2017), On the foundations of Corporate Social Responsibility, “The Journal of Finance”, vol. 72 no. 2, pp. 853-910.
López M.V., Garcia A., Rodriguez L. (2007), Sustainable development and corporate performance. A study based on the Dow Jones Sustainability Index, “Journal of Business Ethics”, vol. 75, pp. 285-300.
Lund P.D. (2009), Effects of energy policies on industry expansion in renewable energy, “Renewable Energy”, vol. 34, pp. 53-64.
Mair J., Marti I. (2009), Entrepreneurship in and around institutional voids. A case study from Bangladesh, “Journal of Business Venturing”, vol. 24 no. 5, pp. 419-435.
Martin J.D., Sayrak A. (2003), Corporate diversification and shareholder value. A survey of recent literature, “Journal of Corporate Finance”, vol. 9 no. 1, pp. 37-57.
Matten D., Moon J. (2008), “Implicit” and “explicit” CSR. A conceptual framework for understanding CSR in Europe, “The Academy of Management Review”, vol. 33 no. 2, pp. 404- 424.
Mccarthy K. (2018), Surviving regulation. How European energy industries are adapting to new rules, “Journal of Business Strategy”, vol. 39 no. 4, pp. 28-33.
McWilliams A., Siegel D. (2001), Corporate Social Responsibility. A theory of the firm perspective, “Academy of Management Review”, vol. 26 no. 1, pp. 117-127.
Mitchell R., Agle B., Wood D. (1997), Toward a theory of stakeholder identification and salience. Defining the principle of who and what really counts, “Academy of Management Review”, vol. 22 no. 4, pp. 853-886.
Palepu K. (1985), Diversification strategy, profit performance and the entropy measure, “Strategic Management Journal”, vol. 6, pp. 239-255.
Patrisia D., Dastgir S. (2017), Diversification and corporate social performance in manufacturing companies, “Eurasian Business Review”, vol. 7 no. 1, pp. 121-139.
Perrini F., Russo A., Tencati A. (2007), CSR strategies of SMEs and large firms. Evidence from Italy, “Journal of Business Ethics”, vol. 74 no. 3, pp. 285-300.
Reimann F., Rauer J., Kaufmann L. (2015), MNE subsidiaries’ strategic commitment to CSR in emerging economies. The role of administrative distance, subsidiary size, and experience in the host country, “Journal of Business Ethics”, vol. 132 no. 4, pp. 845-857.
Refinitiv Reuters (2019), Environmental, Social and Governance (ESG) scores from Refinitiv, https://www.refinitiv.com/content/dam/marketing/en_us/documents/methodology/esg-
Rumelt R.P. (1974), Strategy, structure and economic performance, Harvard University Press, Cambrige, MA.
Sambharya R.B. (2000), Assessing the construct validity of strategic and SIC-based measures of corporate diversification, “British Journal of Management”, vol. 11 no. 2, pp. 163-173.
Schrettle S., Hinz A., Scherrer-Rathje M., Friedli T. (2013), Turning sustainability into action. Explaining firms’ sustainability efforts and their impact on firm performance, “International Journal of Production Economics”, vol. 147, pp. 73-84.
Sharfman M.P., Shaft T.M., Tihanyi L. (2004), A model of the global and institutional antecedents of high-level corporate environmental performance, “Business and Society”, vol. 43 no. 1, pp. 6-36.
Stakeholder Forum (2015), Universal Sustainable Development Goals. Understanding the transformational challenge for developed countries, https://sustainabledevelopment.un.org/content/documents/1684SF__SDG_Universality_Report__May_
Steen M., Weaver T. (2017), Incumbents’ diversification and cross-sectorial energy industry dynamics, „Research Policy”, vol. 46 no. 6, pp. 1071-1086.
Strike V.M, Gao J., Bansal P. (2006), Three lenses on the multinational enterprise: politics, corruption and Corporate Social Responsibility, “Journal of International Business Studies”, vol. 37 no. 6, pp. 850-862.
Sweeney L., Coughlan J.P. (2013), Corporate Social Responsibility and firm performance. A stakeholder approach, “Academy of Management Proceedings”, vol. 2013, no. 1.
Tarmuji I., Maelah R., Tarmuji N.H. (2016), The impact of Environmental, Social and Governance Practices (ESG) on economic performance. Evidence from ESG Score, “International Journal of Trade, Economics and Finance”, vol. 7 no. 3, pp. 67-74.
Torres-Reyna O. (2007), Panel data analysis fixed and random effects using Stata, “Data & Statistical Services”, Princeton University Press, http://www.princeton.edu/~otorres/Panel101.pdf [19.12.2020].
United Nations (2019), World Economic Situation Prospects 2019, https://www.un.org/development/desa/dpad/wpcontent/uploads/sites/45/WESP2019_BOOK-web.pdf [25.09.2019].
Useem M. (1988), Market and institutional factors in corporate contributions, “California Management Review”, vol. 30 no. 2, pp. 77-88.
Vitezić N., Vuko T., Mörec B. (2012), Does financial performance have an impact on corporate sustainability and CSR disclosure – a case of Croatian companies, “Journal of Business Management”, vol. 5, pp. 40-47.
Waddock S.A., Graves S.B. (1997), The corporate social performance-financial performance link, “Strategic Management Journal”, vol. 18 no. 4, pp. 303-319.
Welford R. (2005), Corporate social responsibility in Europe, North America, Asia. 2004 survey results, “The Journal of Corporate Citizenship”, vol. 17, pp. 33-52.
Withisuphakorn P., Jiraporn P. (2016), The effect of firm maturity on corporate social responsibility (CSR): do older firms invest more in CSR?, “Applied Economics Letters”, vol. 23 no. 4, pp. 298-301.
Wood D.J. (1991), Corporate social performance revisited, “The Academy of Management Review”, vol. 16 no. 4, pp. 691-718.
Yang X., Rivers C. (2009), Antecedents of CSR practices in MNCs’ subsidiaries. A stakeholder and institutional perspective, “Journal of Business Ethics”, vol. 86, pp. 155-169.
Copyright (c) 2020 WSB University in Wroclaw
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
The aim of CEREM is to make scientific work available in accordance with the principle of open access. The rules mentioned below are important, as they enable CEREM and its publisher, the WSB University in Wrocław, to distribute the scientific work to a wide public while complying with specific legal requirements, at the same time protecting the rights of the authors.
The author transfers to the WSB University in Wrocław, free of charge and without territorial limitations, with all proprietary copyrights to the said piece of work in the understanding of the act of 4th February 1994 on copyrights and derivative rights (Journal of Laws of 1994, no. 24, item 83, as amended) on an exclusivity basis, i.e. the rights to:
1. Make the piece of work in question available via the Digital Library established by the WSB University in Wrocław.
2. Produce, record and reproduce in multiple copies the piece of work using any techniques whatsoever, including printing, reprography, magnetic recording and digital processing, and particularly its reproduction by recording on CDs and similar data carriers,
3. Use fragments of the piece of work for promotional purposes in publications, promotional materials, the Internet and Intranet type networks managed by the WSB University in Wrocław.
4. Store the piece of work into computer databases managed by the WSB University in Wrocław.
5. Copy and reproduce the piece of work using photo-mechanic technologies other than those commonly known at the time of the signature hereof (photocopies, Xerox copies etc.),
6. Process the piece of work, transferring it into an electronic form, and distribute it on the Internet without limitations.