1. PRICE College of Business University of Oklahoma University of Oklahoma Legitimacy, Visibility and the Antecedents of Corporate Social Performance Mark Sharfman The University of Oklahoma & Shih-Chi Chiu University of Missouri-Columbia Advancing theory in CSR: An intercontinental dialogue Université du Québec à Montréal 14 October 2006

2. PRICE College of Business University of Oklahoma University of Oklahoma Research Questions 1.What effect do legitimacy pressure and legitimacy seeking behavior have on firms’ levels of corporate social performance (CSP)? 2.Can CSP be conceptualized as an instrumental response to legitimacy pressures based in part on firm visibility?

3. PRICE College of Business University of Oklahoma University of Oklahoma Research Model Firm Slack Corporate Social Performance Accounting Returns Market Returns Firm SizeIndustry Visibility H5 (+) H7b (+) H7a (+) H2 (+) H1 (+)H4 (+) H3 (+) Stakeholders H6 (+)

4. PRICE College of Business University of Oklahoma University of Oklahoma Data and Methods CSP: Factor score of Fortune Social Responsibility Reputation (FSRR) score plus the KLD strength indicators in diversity, environment and community. Industry Visibility: Average counts of the four-digit Standard Industrial Classification (SIC) codes in the FirstSearch and Business & Company Resource Center news databases. Visibility to Stakeholders: Factor score of firm news mentions, number of public affairs personnel, number institutional shareholders, common shareholders and CSP oriented shareholder resolutions. Firm Size: Factor score of total assets, total sales, and total equity. Economic Performance: 2000 ROA and Total Return

5. PRICE College of Business University of Oklahoma University of Oklahoma Data and Methods continued Firm Slack: Firm Slack: 2002 Weighted Average Cost of Capital ((average cost of all debt * the weight of debt) + (cost of equity * weight of equity)*firm’s corporate tax rate) Sample: From an initial sample of 159 firms from the S&P 500 who were evaluated both by Fortune and KLD, the analysis was done on a final sample of 105. Analysis: Hierarchical regression

6. PRICE College of Business University of Oklahoma University of Oklahoma Results- cont. Dependent variable: 2002 CSP factor score Main EffectsInteractionHypotheses Tested Hypothesis Supported? (Yes/No) Industrial visibility.12.08H1NO Stakeholder factor (PA, institutional holders, news, resolutions, shareholders).65***.58***H2YES Organizational slack (WACC- using 5.6% risk premium) -.17** -.12 † H3YES Size factor (assets, sales, equity).02.04H4NO Interaction (Moderator effects) Accounting returns (ROA) x Stakeholder factor.19*H7aYES Market returns (RET) x Stakeholder factor -.06H7bNO R2R2.512.535 ∆ R 2.512.023 F 24.40***17.48*** F-Statistic for Change 24.402*** 2.286 † N=105, † p<.10, * p <.05, ** p<.01, *** p <.001

7. PRICE College of Business University of Oklahoma University of Oklahoma Results continued. Dependent Variable: Stakeholder factor (PA, institutional holders, news, resolutions, shareholders) ControlMain EffectsHypotheses Tested Hypothesis Supported? (Yes/No) Control variable WACC -.17 † -.25* Independent variables Economic performance (total stock returns).16H5NO Industry visibility.20*H6YES R2R2.028.077 ∆ R 2.028.049 F 2.884 † 2.712* F-Statistic for Change 2.884 † 2.580 † N=105, † p<.10, * p <.05, ** p<.01, *** p <.001

8. PRICE College of Business University of Oklahoma University of Oklahoma Conclusions There is a strong relationship between the level of visibility to stakeholders and CSP.There is a strong relationship between the level of visibility to stakeholders and CSP. Organizational slack enables firms to perform a higher level of CSP supporting the virtuous cycle argument.Organizational slack enables firms to perform a higher level of CSP supporting the virtuous cycle argument. Economic performance moderates the visibility to stakeholders and CSP relationship.Economic performance moderates the visibility to stakeholders and CSP relationship. Industry visibility predicts the firm’s the level of visibility to stakeholdersIndustry visibility predicts the firm’s the level of visibility to stakeholders