Building Trust with Material and Immaterial Corporate Social Responsibility : Benefits and Consequences

We examine whether the benefits and consequences of building trust through corporate social responsibility (CSR) vary when the company engages in material or immaterial CSR, and the conditions under which these benefits hold. Our study informs companies about the relative benefits and consequences of engaging in particular types of CSR activities. Prior archival research finds that CSR performance can buffer companies against negative stock reactions caused by subsequent adverse events, such as financial restatements. However, theory suggests that there are boundary conditions for this buffering effect through the multiple dimensions of trust violations. We predict and find using Experiment 1 that positive performance in material CSR enhances competence trust, while positive performance in immaterial CSR enhances integrity trust in the company. We predict and find using Experiment 2 that positive material CSR performance alleviates investors’ negative reactions to an error restatement but that this effect does not occur for a fraud restatement. In contrast, positive immaterial CSR performance results in greater negative reactions to a fraud restatement, but this effect does not occur for an error restatement. These effects can be explained through the multiple dimensions of trust and trust violation, in accordance with the schematic model of dispositional attribution. Lastly, a supplementary experiment supports the robustness of our results to the baseline of neutral CSR performance. Our study has important implications for companies and standard setters about the trust-building effects of engagement in CSR and, more generally, of how CSR issues with different materiality levels buffer against the adverse effects of negative events