Corporate Social Responsibility, Customer Satisfaction ...

Corporate Social Responsibility, Customer Satisfaction, and Market Value Author(s): Xueming Luo and C. B. Bhattacharya Source: Journal of Marketing, Vol. 70, No. 4 (Oct., 2006), pp. 1-18 Published by: American Marketing Association Stable URL: . Accessed: 02/12/2013 12:43 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@. .

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Xueming Luo & C.B. Bhattacharya

CCuosrtopmorearStaSetoicsifaalcRteisopnaon,ndsMibairlikteyt, Value

Althoughpriorresearch has addressed the influenceof corporate social responsibility(CSR) on perceived customerresponses, itis notclear whetherCSR affectsmarketvalue ofthefirmT. his studydevelops and tests a conceptual frameworkw, hichpredictsthat(1) customersatisfactionpartiallymediates the relationshipbetween CSR and firmmarketvalue (i.e., Tobin'sq and stockreturn)(,2) corporateabilities(innovativenesscapabilityand productquality)moderatethe financialreturnsto CSR, and (3) these moderatedrelationshipsare mediated by customersatisfactionB. ased on a large-scale secondary data set, the resultsshow supportforthisframework. Notablyt,heauthorsfindthatinfirmswithlowinnovativenesscapabilityC, SR actuallyreduces customersatisfaction levels and, throughthe loweredsatisfaction,harms marketvalue. The uncovered mediated and asymmetrically moderatedresultsofferimportanitmplicationsformarketingtheoryand practice.

In today's competitivemarketenvironmentc,orporate social responsibility(CSR) representsa high-profile notionthathas strategiicmportancteomanycompanies.

As manyas 90% oftheFortune500 companiesnowhave explicitCSR initiative(sKotlerandLee 2004; Lichtenstein, Drumwrightan, d Bridgette2004). Accordingto a recent specialreportin BusinessWeek(Berner2005,p. 72), large companiesdisclosedsubstantiailnvestmenitns CSR initiatives(i.e.,Target'sdonationof$107.8millioninCSR represents3.6% ofitspretaxprofitsG, eneralMotors'sdonation of$51.2 millionrepresent2s.7% ofitspretaxprofitsG,eneralMills'sdonationof$60.3millionrepresent3s.2% ofits pretaxprofitsM, erck'sdonationof$921 millionrepresents 11.3% of its pretaxprofitsa,nd HospitalCorporationof America'sdonationof$926 millionrepresent4s3.3% ofits pretaxprofits)B. y dedicatingever-increasinagmountsto cashdonationsi,n-kindcontributioncsa,usemarketingan, d employeevolunteerismprogramsc,ompaniesare actingon thepremisethatCSR is notmerelythe"righthingto do" butalso "thesmartthingtodo" (Smith2003,p. 52).

Importantlyal,ong withincreasingmediacoverageof CSR issues,companiesthemselvesare also takingdirect and visiblestepsto communicatteheirCSR initiativetso

XuemingLuo is AssistantProfessorofMarketingD,epartmenotfMarketing,UniversitoyfTexas at Arlingto(ne-mail:luoxm@uta.edu)C. .B. Bhattacharyais AssociateProfessorofMarketingD,epartmenotfMarketing, School of Management,Boston University(e-mail:cb@bu.edu). The authorsthankBiao He, KhurramAnsari,ThitikarnRasrivisutha,nd XiaochuYu fortheirassistance withdata collectionand analysis.They also thanktheanonymousJMreviewersG, uidoBerens,DonaldLichtenstein,FernadoJaramiloa,nd seminarparticipantast the Universitoyf Texasat Arlingtofnortheirconstructivaend insightfcuolmmentosn previous versionsofthisarticle.

Toreadorcontribtuotreeadearndauthodrialoguoenthiasrticlve,isit htfp://mwawrwketingpcoowme/rj.mblog.

variousstakeholdersin, cludingconsumersA. decade ago, Drumwrigh(1t996) observedthatadvertisinwgitha social dimensionwas on therise.The trendseemsto continue.

Manycompanies,includingthelikesof Targetand WalMart,havefundedlargenationalad campaignspromoting theirgoodworksT. he October2005 issueofInStylemagazine alone carriedmorethan25 "cause" advertisements.

Indeed,consumerseem to be takingnotice;whereasin 1993,only26% ofpeoplesurveyedbyCone Communicationscouldnamea companyas a strongcorporatceitizen, by 2004,thepercentagseurgedto as highas 80% (Berner

2005). Motivatedi,npartb, ythismountinigmportancoefCSR

inpractices,everalmarketinsgtudieshavefoundthatsocial responsibilitpyrogramhsavea significanint fluencoen several customer-relateodutcomes(Bhattacharyaand Sen 2004). More specificallyo,n thebasis of lab experiments, CSR is reportedto affecte,itherdirectlyorindirectlyco,nsumerproductresponses(Brown1998; Brownand Dacin 1997), customer-companiydentificatio(nSen and Bhattacharya2001), customerdonationsto nonprofiotrganizations(LichtensteinD,rumwrighatn, dBridgett2e004),and, morerecentlyc,ustomersp' roductattitude(Berens,Van Riel,andVanBruggen2005).

Althoughthisstreamofresearchhas contributeadgreat deal of insight,thereis stilla limitedunderstandinogf whetherand how CSR affectsfinancialoutcomesof the firms,uchas itsmarkevtalue.Yetitis importanttoevaluate CSR's impacton marketvalue (i.e., stock-basedfirmperformanceb)ecausea firm'sfinanciahl ealthis theultimate testforthe success or failureof any strategicinitiative. Moreoverp, riorlaboratorystudiesandanecdotalexamples are yetto be complementedwitha large-scaleanalysis usingsecondarydata.Indeed,BrownandDacin (1997, p. 80) urgentlycall forresearchon "howsocietallyoriented activitiems ightbringaboutpositiveoutcomesforthefirm." Echoingthis,Berens,Van Riel, and Van Bruggen(2005)

0 2006,AmericaMn arketinAgssociation

ISSN:0022-242(9print1),547-718(5electronic)

1

Journal of Marketing

Vol.70(October2006),1-18

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energeticallcyall forresearchefforttshatdirectlylinkCSR to stockmarkept erformance.

Ourresearchrespondsto thiscall by investigatintghe linkagebetweenCSR andfirmmarkevtaluewitha longitudinal,archivadl ataset.In keepingwithcontingenltinkages between CSR and consumer responses that prior researchersarticulated(see, e.g., Bhattacharyaand Sen 2004), we do notpredicta simple,unconditionarlelationshipbetweenCSR andmarketvalue.Thisis becausefirms are notthesame in executings,upportinga,nd exploiting CSR initiativeisn themarketplac(eBrown1998; Sen and

Bhattachary2a001). Specificallyc,ompaniesmaygenerate differen(it.e.,positiven, onsignificanatn,dnegativem) arket returnfsromCSR underdifferenctonditionsF.orexample, Starbucks'ssuperiorbrandequityand its successfulCSR initiativewsiththecharityagencyCARE aredue,atleastin part,to its superiorproductquality,innovativsekills,and abilitytoobtainandsustaincustomesratisfactioonvertime. In contrastm, anycompaniesfindthatCSR resultsinnegativefinanciarl eturnbsecauseof theaddedcostsof making extensivceharitablceontributionansdthedivertedattention

fromimprovingproductqualitythatwouldhave allowed themto bettersatisfycustomerneedsandwants(McGuire, Sundgren,and Schneeweis1988; Sen and Bhattacharya 2001). Thus,theresearchquestionsinthisstudyareas follows:(1) Underwhatconditiondso CSR initiativersesultin positivefinanciapl erformancea?nd(2) Does customersatisfactionmatterin therelationshibpetweenCSR and firm

performance? To addressthesequestionsw, e developandtesta con-

ceptualmodel thatproposesthatCSR initiativeesnable firmsto builda base of satisfiedcustomersw, hichin turn contributepsositivelytomarkevt alue.Specificallyw, e predictthatcustomersatisfactiopnartiallymediatestherelationshipbetweenCSR and marketvalue.Althoughextant marketinlgiteraturheas addressedthedirectimpactofcustomersatisfactioonn firmshareholdevralue (e.g.,Anderson,Fornell,andMazvanchery2l004; Fornellet al. 2006), themediatingroleofcustomersatisfactioinn thefinancial contributioonf CSR has been ignored.In thisstudy,we explicitlytheorizethisrole and arguethatbuildingcustomersatisfactiornepresentpsartoftheunderlyinmg echanismthroughwhichthe financialpromisesof CSR are

capitalized. Furthermorwe,e exploretheboundaryconditionusnder

whichfirmsmayderivepositiveor negativemarketvalue fromCSR. Drawingon varioustheoreticablases,we argue thatfirmtshathavebetterinside-ouctorporataebilities(i.e., productqualityand innovativenests)o beginwithtendto generatemoremarkevt aluefromoutside-instrategiicnitiatives(i.e., CSR programs)C. onverselyf,irmsthatexhibit poorercorporataebilitiesmayfindthatCSR actuallyharms customersatisfactioannd,becauseof theloweredsatisfaction,decreasesstockperformance.

Based on multiplesecondarydatasetsthatcompriseratingsof largecompanies,theresultsshowsupportforthe CSR -3 customersatisfactio-n> firmmarketvaluecausal linkage.In additionw, e findthata propercombinationof externaCl SR initiativeasndinternaclorporataebilitiescan lead to synergistirceturnsH. owevert, hedataalso reveala

previouslyneglected"darkside" of CSR. That is, CSR actuallyreducescustomersatisfactiolnevelsin firmswith low innovativenescsapabilityand, throughthisnegative impacth, armsfirmmarketvalue.The uncoveredmediated and asymmetricallymoderatedresultssuggesta more nuancedunderstandinogf thefinanciarl eturntso CSR for bothpractitionearnsdmarketinrgesearchers.

Conceptual Frameworkand Hypotheses

CSR and MarketValue

BroadlydefinedC, SR is a company'sactivitiesand status relatedto itsperceivedsocietalor stakeholdeorbligations (Brown and Dacin 1997; Sen and Bhattacharya2001; VaradarajanandMenon1988).Althoughstudiesin strategy and financehave exploredtherelationshibpetweenCSR actionsand firmperformancem, piricalevidenceto date has been ratherconflicting(for a review,see Orlitzky, Schmidt,and Rynes2003; Pava and Krausz 1996). For example,thereturntso CSR are foundto be positivein some studies(e.g., Fombrunand Shanley1990; Soloman and Hansen 1985) butnegativein others(e.g., Aupperle, Carroll, and Hatfield 1985; McGuire, Sundgren,and Schneeweis1988). Thus, Margolisand Walsh (2003, p. 277) concludethatthe relationshipbs etweenCSR and financiapl erformancare edecisively"mixed."

Thereareatleasttwoexplanationfsortheseconflicting findingsF.irst,existingstudieshavelargelyrelatedCSR to backward-lookinfgirmprofitabilit(iy.e., accounting-based returnon investmenbt)utnotto forward-lookinfigrmmarketvalue(i.e., stock-basedTobin'sq). Theoreticallyh,owever,marketvalue is differenftrom(and perhapsmore importantthan)returnon investmenbtecause"accounting measuresare retrospectivaend examinehistoricapl erformance.In contrastt,hemarketvalue of firmshingeson growthprospectsand sustainabilityof profits,or the expectedperformancien the future"(Rust,Lemon,and Zeithaml2004,p. 79). Second,theequivocallinkbetween CSR and firmperformancme aybe due,in part,to extant strategyand financeliteraturheavinglargelyomittedthe underlyinpgrocessesor contingencyconditionsthatmay explaintherangeofobservedrelationship(Ssen andBhattachary2a 001).

We preciselyexaminethese researchissues in this studyI.n particulara,s we showinFigure1,ourframework proposesthattherelationshibpetweenCSR andfirmmarketvalueis betterunderstoobdythemediatinglinkofcustomersatisfactionIn. recentimes,scholars(e.g.,Anderson, Fornell,andMazvanchery2l004; Fornellet al. 2006) have demonstratetdhe positiverelationshipbetweencustomer satisfactionand marketvalue.We buildon thisliterature andinstitutiontahl eoryto proposethatCSR is a driverof customersatisfactioannd thattheCSR-firmmarketvalue linkageexists(at leastpartiallyb) ecauseoftheunderlying processthroughcustomersatisfactionIn. additiond, rawing on workin thearea of corporatiedentityand associations (e.g.,BrownandDacin 1997),we positthata firm'scorporateabilities(i.e.,productqualityandinnovativenescsapa-

21 JournaolfMarketinOgc,tober2006

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(Corporate Ability .Productquality .Innovativeness

capability

FIGURE 1 Conceptual Framework

CSR x Corporate

Ability H4

H3 CS

Customer

CSR

Satisfaction

H1

(CS)

MarkeVt alue

,Tobin'sq 'Stock return

H2 CS

Notes: Bolded paths are hypothesizedrelationshipsU. nboldedpaths have been studiedpreviously(e.g., Anderson,Fornell,and Mazvancheryl 2004; Anderson,Fornell,and Rust 1997; Fornellet al. 2006; Griffiannd Hauser 1996; Mithas,Krishnan,and Fornell2005b). Dashed paths indicatethatthe depictedrelationshipsare partiallymediatedbycustomersatisfaction.

bilitym) oderattheerelationsbheiptweeCnSRandmarket potentmialembeorfsvariousstakeholdgerrouptshactom-

valueF. inallyw,eexpectthatcustomseartisfactmionedi- paniens eedtoconsideVri.eweidnthisways,uchgeneral-

atesa,tleastpartialtlyh,esme oderatreedlationships. izedcustomearrselikelytobemorseatisfibedyproducts

CSR and Customer Satisfaction

andservicetshastociallryesponsibflierm(vsersussocially irresponsciboluenterpaorftfs)er.

Customseartisfactiosndefineads anoveralelvaluation Seconda,stronrgecorodfCSRcreateasfavorabcloen-

basedonthecustomerto'stapl urchasaendconsumptiontexthatpositiveblyoostcsonsumerevs'aluatioonfsand

experienwceitha goodorservicoevertime(Anderson, attitutdoewartdhefirm(BrowanndDacin1997G; iirhan-

Fornelaln, dMazvanche2r0y0l4F; orne1ll992)I.nthemar- CanlaindBatr2a004S; enandBhattacha2r0y0a1)S. pecifi-

ketinlgiteratucrues,tomseartisfacthioansbeenrecognized callyr, ecenwt orkosncustomer-compidanenytification

as animportapnatrtofcorporastterateg(Fyorneelltal. (BhattachaarnydaSen20032, 004)suggetsthaCtSRinitia-

2006)anda keydriveorffirmlong-terpmrofitabialnitdy tivecsonstituatkeeyelemenotfcorporaitdeentithyactan

markvetalue(GrucaandRego2005).

inducceustometrosidentif(iy.e.,develoapsenseofcon-

WhyshouladfirmC'sSRinitiativleeasdtogreatceurs- nection)withthe companyI.ndeed,Lichtenstein,

tomesratisfactiAontl?eastthrereesearcshtreampsointto DrumwrigahntdB, ridget(t2e004p, . 17)notetha"ta way

sucha linkF:irstb,othinstitutiotnhaelor(yScot1t987a) nd thaCtSRinitiativcreseatbeenefiftosrcompaniaepspeartso

stakeholdtehreor(yMaignanF,errelal,ndFerrel2l005) bebyincreasicnognsumeirdse'ntificawtiiotnhthecorpora-

suggestthaatcompanyac'stionasppeatlothemultidimen-tion... [and]supporftorthecompanyN.o"tsurprisingly,

sionaliotyftheconsumaesrnotonlyaneconombiceinbgut identificeudstomearrsemorleikelytobesatisfiewditha

alsoa membeorfa familcyo,mmuniatnyd,countr(Hyan- firmo'sfferin(eg.sg.,BhattacharRyaao,,andGlynn1995;

delmanandArnold1999).BuildinognthisD, auband BhattachaarnydaSen2003).

Ergenzing(2er005)proposteheterm"generalizceuds-

ThethirlditeratusrtreeamthaetnableusstorelatCeSR

tomert"odenotpeeoplewhoarenotonlycustomewrsho tocustomseartisfacteioxnaminetsheantecedenotfscus-

careaboutheconsumpteioxnperienbcuetalsoactuaolr tomesratisfactiFoonr.examplpe,erceivevdalueis a key

CorporatSeocialResponsibilitCyu,stomeSratisfactionan, dMarkeVtalueI 3

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antecedentthathasbeenempiricallsyhowntopromotceustomersatisfaction(Fornellet al. 1996; Mithas,Krishnan, andFornell2005b).Inourcontexta,ll elsebeingequal,customerslikelyderivebetterperceivedvalue and, consequentlyh,ighersatisfactiofnroma productthatis madebya sociallyresponsiblecompany(i.e., added value through good social causes). Furthermoreen, gagingin CSR may allowfirmtsounderstantdheirgeneralizedcustomerbsetter and thusimprovetheircustomer-specifkinc owledge(Sen and Bhattacharya2001). Because improvingcustomer knowledgerepresentsanotherantecedentthathas been foundtoenhancecustomersatisfactio(nJayachandraental. 2005; Mithas,Krishnana,ndFornell2005a),we believethat CSR initiativems ayhelppromotecustomersatisfaction.

Hl: Allelsebeingequal,firmtshatareviewedmorefavorably for theirCSR initiativesenjoy greatercustomer satisfaction.

The Mediating Role of Customer Satisfaction The existingmarketinlgiteratursehowsaccumulatinegvidencefortheinfluencoefcustomesratisfactioonnfirmmarketvalue.Forexample,firmws ithsatisfiedcustomertsend to enjoygreatercustomerloyalty(e.g., Boltonand Drew 1991;Oliver1980),positivewordofmouth(Szymanskaind Henard2001), andcustomer'ws illingnestso paypremium prices(HomburgK, oschate,andHoyer2005),all ofwhich can increasea firm'smarketvalue.Indeed,severalstudies findthatfirmswithhigherlevelsof customersatisfaction areable to achievehigherlevelsofcashflows(e.g.,Gruca andRego 2005; Fornell1992; Mittalet al. 2005) and less volatilityoffuturceashflows,thusleadingtosuperiormarketvalue(e.g.,AndersonF,ornell,andMazvanchery2l004; Fornelletal. 2006; SrivastavaS,hervania,ndFahey1998).

In linkingthisevidencefortheinfluenceof customer satisfactioonn firmmarketvaluewithourfirsthypothesis ontheinfluencoefCSR on satisfactiona ,mediatinrgoleof customersatisfactionin the CSR-performancelinkage mightlogicallybe expectedT. hatis,CSR affectcsustomer satisfactionw,hichin turnaffectsmarketvalue. In other words,customersatisfactionrepresentsthe mediational pathwaythroughwhichCSR actionsaffectfirmmarket value.

Howevert,heremaybe "noncustomerroutes"bywhich CSR affectsmarketvalue. For example,bothtextbooks (e.g.,KotlerandLee 2004; PavaandKrausz1996)andacademic articles(e.g., Godfrey2005; Margolisand Walsh 2003) havepointedtotheimpactofCSR onmultiplsetakeholders,suchas employeesand investorass well as consumersI.n particularp,ositive"moralcapital"as a resultof CSR (Godfrey2005, p. 777) could directlyaffectmarket valueby improvingemployeemoraleand productivitIyn. additionC, SR createspublicgoodwill(HoustonandJohnson 2000; McGuire,Sundgren,and Schneeweis1988), whichprovidesan "insurance-likep"rotectionto shareholder wealth. As a consequence, puttingthe pieces togetherw, e predicta partiallymediatingroleofcustomer satisfactioonn theimpactofCSR onmarkevtalue.

H2:Allelsebeingequal,firmtshatareviewedmorefavorably fortheirCSRinitiativeensjoyhighemr arkevtalue,anda

firm'csustomesratisfactiloenvelatleastpartiallmy ediatesthisinfluencoefCSR onmarkevtalue.

The Moderating Role of Corporate Abilities In thissectionw, e arguethattherelationshibpetweenCSR and firmmarketvaluemaynotbe universallypositivebut rathercontingenotn severalboundaryconditionsT.hatis,a positiveornegativerelationshimp aybe observedd, ependingonthelevelsofcorporataebilitiesI.n generalc,orporate abilitiesreferto variouselementsofa firm'sexpertiseand competencys,uchas theabilityto improvethequalityof existingproducts/servicaensd theabilityto generatenew products/servicinesnovativel(yGatignonandXuereb1997; Rust, Moorman,and Dickson 2002; Zeithaml 2000). Accordingto BrownandDacin (1997), a company'sCSR and corporateabilitiesbothinfluencecustomersp' erceptionsofthecompany'sproducts.

We expectthatfirmws ithlow levelsofcorporataebilities(i.e., low levelsofinnovativenecsaspabilitieasndproductquality)generatenegativemarketvaluefromCSR for severalreasonsO. n thebasisofinstitutiontahleoryH,andelman and Arnold(1999) contendthatcompaniesshould engagein CSR withgood causes (forthesocial aspectof legitimationan) d,atthesametime,providea goodproduct (forthepragmaticaspectoflegitimationT).hus,itis likely thatCSR initiativefsailtogeneratea favorabliempactifthe firmis perceivedas less innovativaend as offerinpgoorqualityproducts(i.e., due to a lack ofpragmatilcegitimation; see DiMaggio and Powell 1983). Indeed, Sen and Bhattachary(a2001) showthatCSR initiativems ayeven backfirwe ithreducedpurchaseintentandnegativeperceptionsifconsumerbselievethatCSR investmentasre at the expenseof developingcorporateabilities,suchas product qualityandinnovativene(sis.e.,investmenrtsepresen"tmisguidedprioritieso"n thepartofthefirmwithlowlevelsof corporataebilities)M. oreimportancto, nsumerms aymake negativeand detrimentaalttributionrsegardinga firm's motivesifa low-innovativeneosrslow-product-qualiftiyrm engages in social responsibilityT.his would ultimately resultin an unattractivcoerporatiedentityand,thus,negativemarkerteturnbsyvirtueofnegativewordofmouthand detrimentcaul stomecromplaint(sBrown1998;Varadarajan andMenon1988).1

Converselyw, e predictthatfirmswithhighlevelsof corporateabilitiesgeneratepositivemarketvalue from CSR. Suchfirmtsendtopossesbettercorporatiemageand moreattractiviedentitiews ithwhichconsumerswantto

lourfocushereis onthemoderatirnogleofcorporatabe ilityin theCSR-performanlicnekrathetrhanon thedirecrtelationship betweeCnSR andcorporatabe ilityT.hatis,wedonotinvestigate whetheCrSR directlayffectosris relatedtoinnovativenaenssd producqtuality(i.e.,corporaatbe ility-relactoednstrucgtsi)venthe conflictilnitgeraturOen.theonehandB, rownandDacin(1997,p. 68, emphasiasdded)contendthat"CSR associationasreoften unrelatetdothecompanya'sbilitieisnproducinggoodsandservices."Ontheothehrandi,tispossibltehata firm'isnnovatioisn CSR oriente(de.g.,environmentraellsyponsibpleackaginga)n, d CSRinitiativmesayaffecptroduct-qualpietryceptions.

4I JournaolfMarketinOgc,tober2006

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identify(Bhattacharyaand Sen 2003). Whencoupledwith tiveMedia Reporting(CMR), and CenterforResearchin

highcorporateabilities,a firm'sCSR actionsare more SecurityPrices(CRSP).

likelyto generatfe avorablaettributionansdconsumeridentificationT. his would ultimatelypromoteperformance- Measuring CSR

enhancingbehaviors,such as customerloyalty(BhattacharyaandSen 2004). Indeed,ifa firmcanaccommodate customerasndotherstakeholderasndmeetdifferensettsof norms(e.g., pragmaticand social norms)by not merely

One approachto measuringmarketperceptionosf firms' CSR initiativeis torelyontheamountofCSR investments disclosedinfirmsa'nnualreporttsoshareholderHs.owever, thereare manyimportandtoubtsaboutthevalidityof the

executingCSR initiativebsutalso developingstrongcorpo- announcedCSR investmentds,espitethe seemingattracrateabilitiesto supportandexploittheseCSR actions,itis tivenessof thisapproach.For example,thereis a lack of in a betterpositionto winthesocial contracti,nstitutional consensusonwhatshouldbe included(orexcluded)inCSR

allegiance,morallegitimacya,nd consumerss' upportfor theorganization(cf. Handelmanand Arnold1999,p. 34; Scott1987).Takentogethert,hesebeneficiaelffectssuggest

investment(Ms argolisandWalsh2003; OrlitzkyS,chmidt, and Rynes2003; Tsoutsoura2004). Few companieshave theirannouncedCSR investmentasuditedor validated

a positivemarkerteturntoCSR forfirmws ithhighlevelsof corporateabilities.Thereforew, e proposean asymmetric moderatinegffectof corporateabilitieson theassociation betweenCSR andfirmmarkevtalue.

externallbyythirdpartiesT. hus,somefirmms ayoverreport CSR investmenftosrimpressiomn anagemen(ti.e.,exaggeratingtheirgiving). Otherfirmsmay underreporCtSR investmenbtsecausetheymayregardCSR investmenotns ly

H3:Corporataebilitie(si.e.,producqtualityandinnovativenesscapabilitym) oderatteherelationshbieptweenCSR

as donatedcashorin-kindproductasndservices(excluding investmenths atbenefitheenvironmenantdtheiremploy-

andmarkevtalue.Therelationshwipillbe negativfeor ees). Furthermorael,thoughsome externalsources(e.g.,

firmws ithlowcorporataebilitiebsutwillbepositivfeor firmws ithhighcorporatabe ilities.

100 best corporate citizens by Business Ethics, S,ocial ResponsibilitIynitiativereportsm) ay

trackcompanies'CSR investmentosbjectivelyt,henature

The Mediating Role of Customer Satisfaction in the Moderated Relationships

Finallya,s we havearguedp, artofthemechanismbywhich CSR actionsinfluencea firm'smarketvalue is customer

satisfactionT.hus,itis conceivablethatthepositiveimpact of CSR on firmswithhighlevels of corporateabilities enhancesthe level of customersatisfactionw, hichthen leads to enhancedmarketvalue (AndersonF, ornell,and Mazvanchery2l004; BrownandDacin 1997;Sen andBhat-

tachary2a 001). On thecontraryf,orfirmtshatarelowincorporataebil-

ity(i.e.,theyareneitherinnovativneorcompetenitn productquality)C, SR actionsmaynotbe abletogeneratemuch institutionlaelgitimacyc,ustomer-companiydentification, orcustomersatisfactio(nScott1987).As a resultC, SR initiativems ayrelatelittletofinanciarlesultsandmarkevtalue (e.g.,MargolisandWalsh2003; Mithas,Krishnana,ndFornell2005b) in firmswithlow levelsof corporataebilities. Thus:

and amountof CSR investmentfsorthe same firmcan

changedramaticallyfromone sourceto another(Berner 2005; Fombrumand Shanley1990; Margolisand Walsh

2003). Thereforew, e turnto subjectivemeasuresof CSR.

Althoughsomestudiesuse small-scalesurveydatawitha limitedsetof firms(e.g.,Christman2n000), priorresearch suggeststheuse of a morecomprehensivlea,rge-scalesurvey data set available fromFAMA to measure CSR (McGuire,Sundgrena,nd Schneeweis1988). More specifically,in rankingtheUnitedStates'mostadmiredcorporationseach year,FAMA polls morethan10,000financial analystss,eniorexecutivesa,ndWall Streetinvestorfsrom morethan580 largecompanies(see Fortune2005,p. 68).

Foreach firm-yeaorbservationF,AMA collectsratings of CSR thathavebeenmadeon an intervaslcale ranging from0 to 10,with10 as thehighestt;heratingrsepresenat comparisonamongmajorcompetingcompaniesin a given industrySt. udiesinbothmarketinagndstrateg(ye.g.,Fombrumand Shanley 1990; Houston and Johnson2000;

H4:A firm'csustomesratisfactiaotnleastpartiallmy ediates themoderaterdelationshaimp ongCSR,corporataebilities(i.e.,producqtualityandinnovativenceasps ability), andmarkevtalue.

McGuire,Sundgrena,nd Schneeweis1988) havereported evidenceof reliabilityand validityof thisdata source.In particularM, cGuire,Schneeweis,and Branch(1990, p. 170) note,"Fortunereputatioins one of themostcompre-

hensiveand widelycirculatedsurveysof attributeasvail-

Data and Variable Construction

able. Boththequalityandnumberofrespondentasre comparableor superiorto the`expertpanels'usuallygathered

In thissectionw, e describethesecondarydatathatwe col- forsuchpurposes.H" oustonandJohnson(2000,p. 12) also

lectedto testthehypothesesW. e also presentheconstruc- acknowledgietas the"bestsecondaryd"atasource.

tionofthevariabless,uchas CSR, corporataebilitiesc,us-

Priorresearchhasshownthatthereis a reverse-causality

tomersatisfactionan, dmarketvalue.In Table 1,we report concernbetweenCSR and financialperformanc(ee.g.,

thevariables,theirdefinitionsa,nd data sources.We col- McGuire,Sundgren,and Schneeweis 1988). That is, a

lecteddataforthepubliclytradedFortune500 companies firm'sCSR affectistsfuturpeerformancaen,da firm'shis-

frommultiplearchivalsources: COMPUSTAT, Fortune toryoffinanciaplerformancceontributetsoitscurrenCtSR

America's Most AdmiredCorporations(FAMA), the involvemenWt. e accommodatethisconcernby usingthe

AmericanCustomerSatisfactionIndex(ACSI), Competi- approachthatRobertsandDowling(2002) recommendIn.

CorporaStoeciaRl esponsibiCliutsyt,omSeartisfactiaonndM, arkVetalu!e5

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TABLE 1 Variables and Data Sources

Variables CSR

DefinitionsM; easures Broadlydefinedas a company'asctivities

and statusrelatedto itsperceivedsocietal orstakeholdeorbligationlsa;tentvariable indicatedbyCSR scoresin2001 (publishedin2002),2002 (publishedin 2003),and2003 (publishedin2004).

SecondaryData Sources FAMA

Customer satisfaction

Definedas an overalelvaluationofthe postconsumptieoxnperienceofproductosr servicesinthemindsofcustomersl;atent variableindicatedbycustomersatisfaction scores in2002,2003,and 2004.

ACSI

Productquality

Definedas theminimumconditioonrthe thresholodfproducatttributetshata firm mustmeetwhenofferinitgsproductosr serviceincompetitivmearketsl;atent variableindicatedbyqualityof products/servicsecsoresin2001,2002, and 2003.

FAMA

Innovativeness capability

Definedas a firm'asbilitytoapplyitsinternal knowledgsetocktoproducenew technologyn,ewproducts/servicaensd, othernewfrontsla; tentvariableindicated byqualityofproducts/servicsecsoresin 2001, 2002, and 2003.

FAMA

Tobin'sq

Stockprice-basedmeasureoffirmmarket value;observedvariablebased onthe averageofTobin'sq in2002,2003,and 2004.

CRSP COMPUSTAT

Stockreturn

Stockprice-basedmeasureoffirmmarket value;observedvariablebased onthe averageofstockreturinn2002,2003,and 2004.

CRSP COMPUSTAT

Data Types Intervaflrom0 to 10

Intervaflrom0 to 100 Intervaflrom0 to 10

Intervaflrom0 to 10

Ratio Ratio

particulwarer, egreCssSRscoreasgainsftirmfinancpiaelrforman(creeturonnassets[ROA]i)nthepriofrouryears

sellinagndpsychololgiyteratusrteream(Bsluedor1n982; BolesJ, ohnstaonnd,Hair1997J; ohnsteotnal.1990N; ete-

andsavetheresiduoaflthirsegressiaosnthefinaml easure meyeMr,axhaman, dPullig2005).

ofCSR.Becaustehirsesiduiaslindependfenrotmfinancial

performantchee,reverse-causabliitaysis no longera MeasuringCorporateAbilities

concern. FollowintgheworkofChoandPucik(2005)w, eused

theratingosfCSRforeachfirmin2001,2002,and2003 (butpublisheind2002,2003,and2004,duetoa one-year laginprinta)s threseeparatine dicatoorfsthelatenctonstrucotfCSR.2Thisapproacohfusingmeasuremietnemt s withdifferetnimt eframeis alsowidelyappliedinthe strateg(ey.g.,Li andAtuahene-G2im00a1)andpersonal-

Wedonotviewcorporaatbeilitiessimplays a unidimensionaclonstruIcnts.teadw,econsidetrwospecificcorporateabilitiepsr: oduqctualitayndinnovativencaepssability (GatignoandXuere1b997R; ustM, oormaann,dDickson 2002Z; eitham20l00)I.nourviewb,othinnovativenanesds producqtualitcyanrepresetnhtedimensioonfscorporate abilitythatBrownandDacin(1997)proposeA.lthough producqtualitryefertsoa firma'sbilittyo"exploitt"he

capabilitoiefsproducatlsreadiynthemarketpl(aCcheoand

Pucik2005;March1991),innovativenreesps resenats

2ChoandPucik(2005) findstrongsuppor(tconstrucatnd criterion-relvataeliddityf)orusingmultiyeraartingfsromFortune magazinaes indicatoorfstheunderlyilnagtenvtariableM. cGuire, Sundgrenan, dSchneewei(s1988)alsoemploysingle-yeCarSR ratingfsromFortunaes themeasuroefCSR.

firma'sbilittyo"explorne"ewmarkpetossibilitiinetserms ofdevelopinngewproduc(tKsimandMauborgn19e97; KleinschmainddtCooper1991)I.nadditiocno,mmitment tothequalitoyfexistinpgroducitssessentifaol rkeepinag firm'csurrenctustomehrsappyw, hereaisnnovatioisn

6 /JournaolfMarketinOgc,tober2006

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essentialforreachingnewcustomerbases and cateringto ever-changincgustomerneeds.

Formallyp,roductqualitycan be definedas theminimumconditionor thethresholodf productattributetshata firmmustmeet when offeringits products/serviceins competitivme arkets(Rust,Moorman,and Dickson2002; VargoandLusch2004; ZeithamlP, arasuramana,ndBerry 1990).Priorstudieshaveestablishedthata firm'sabilityto providea superiorproduct/serviqcuealityis criticalforits long-termsurvivaland success (e.g., Buzzell, Gale, and Sultan1975;Mittalet al. 2005; Rust,Moormana,ndDickson 2002).

In a similarfashiontoCSR, we measureproducqtuality by FAMA ratingsin 2001, 2002, and 2003 (publishedin 2002,2003,and2004) as theunderlyinigndicatorsA. gain, becauseof thereversecausalitybetweenfinanciapl erformanceand FAMA ratingsw, e controlforthisbias and obtainclean measuresforproductqualityand innovativenesscapabilitybyemployintghesameresidualapproachas inthecase ofCSR (e.g.,RobertsandDowling2002).

Innovativenescsapabilityis a firm'sabilityto applyits internakl nowledgestockto producenewtechnologyn,ew products/serviceasn,d othernew fronts(Drucker1993; GriffinandHauser1996).Accordingto explorationlearningtheory(March1991),innovationis also criticalforthe survivaalndsuccessoforganizationbsecausedynamicmarketsconstantlyshakeouttheplayersthatlack capabilities toexplorenewmarkeotpportuniti(eGs atignonandXuereb 1997; Schumpeter1934). Similarto productquality,we measurethelatentvariableofa firm'sinnovativenecssapabilitybyusingitsFortuneratingsin 2001,2002,and2003 fromFAMA (publishedin 2002,2003, and2004) as three separateindicatorusnderlyintghisconstructP.riorresearch has employedthisdatasourceto measurecompaniesi'nnovativenescsapability(Cho andPucik2005).

Measuring Customer Satisfaction

We used theACSI databaseto measurecustomersatisfaction.In themarketinlgiteraturteh, eACSI has beenshown to be a reliablesourceofmeasuringcustomersatisfaction. Severalstudiesemploythisdatabaseto assess overallcustomersatisfactionof total purchaseand consumption experienceat thefirmlevel (e.g., AndersonF, ornell,and Mazvanchery2l004; Fornellet al. 2006; Grucaand Rego 2005; Mithas,Krishnana,nd Fornell2005b; Mittalet al. 2005). The NationalQualityResearchCenterattheUniversityof Michigandevelopedand maintainstheACSI data set.Ithasdatafornearly200 Fortunelargecompaniesthat span all majoreconomicsectorsand constitutaepproximately43% of theU.S. economyT. o obtainACSI data, morethan50,000 householdconsumers(actual product users)of theselargefirmsare polledon a quarterlybasis. Each valid respondenthas passed screeningquestions relatedto predefinedpurchaseand consumptionperiods. TheACSI usesanintervaslcalerangingfrom0 to 100,with 100as thehighestlevelofcustomersatisfaction.

Based on multi-itemm,ulticonstruccrtiteriat,heACSI is a reliabledatasourcebecauseitemploysthesamesurvey questionnairer,andomsamplinga,nd estimationmodeling

acrossfirmsand years(Fornellet al. 1996; Fornellet al. 2006;Mithas,Krishnana,ndFornell2005b).A comprehensive testof thevalidityand reliabilityof thissatisfaction measurecanbe foundintheworkofFornellandcolleagues (1996). Parallel to CSR, innovativenescsapability,and productquality,we treatcustomersatisfactioans a latent variableand measureit usingits ACSI ratingsin 2002, 2003,and2004 as threeseparateindicators.

Measuring MarketValue We havetwoseparatemeasuresofmarkevt alueatthefirm level acrossyears:Tobin'sq and stockreturnW. e follow priormarketinsgtudies(Lee andGrewal2004; Rao, Agarwal, and Dahlhoff2004) to calculateTobin'sq foreach firm-yeaorbservationI.n3 additionf,ollowingJacobsonand colleagues(i.e.,AakerandJacobson1994,2001; Mizikand Jacobson2003), we derivethe measureof stockreturn usingtheCOMPUSTATandCRSP databases.4Ratherthan usinga simpleyear-endstockprice,we use a moreconservativme easureofstockprice-thatis,theaverageofthe endofthefourquarterosf stockprices-whencalculating Tobin'sq andstockreturn(Lee andGrewal2004). Wethen use thederivedthree-yeaarverage(2002,2003, and2004) ofTobin'sq andstockreturnas observedmeasuresformarket value. Comparedwithmarketvalue, the predicting variablesof CSR, innovativenescsapabilitya,nd product qualitywereall laggedby one yearto be morepreciseon thespecificdirectionofcausalityandtoreducethepossibilityof endogeneitybias (Murthi,Srinivasan,and Kalyanaram1996;Rust,Moormana,n Dickson2002).

Measuring Control Variables Weobtainedthedataforcontrovl ariablesuchas researchand-developmen(Rt &D) intensityf,irmsize, competition intensityan, d ROA fromCOMPUSTAT,and we obtained thedataforadvertisinigntensitfyromCMR. Morespecifically,R&D intensitiys theratioofR&D spendingto total assets.We controlfortheinfluenceof R&D expenditures on performancbeecausea firm'sR&D intensiteynhances innovationactivitieasnd investorse'valuationsof thefirm (Chauvin and Hirschey 1993; Gruca and Rego 2005; McGuire,Sundgrena,ndSchneeweis1988).

Advertisinigntensitiys theratioofreportedadvertising spendingto totalassets.Because COMPUSTAThas many missingdatapointsforfirmadvertisinegxpenditurwe,e use

3Rao,Agarwala,ndDahlhof(f2004,p. 130)providaedetailed functioonnhowtoderivTe obin'sq. Thatis,q = (sharepricex nfiurmmbp'seroreffceormrsemtdoocnsk+toschkoourtt-sttealnrimadbin+ilgiltiqie-usisdhaotrintv-gatleuaresmosfetths+e bookvalueoflong-terdmebt)/bovokalueoftotaalssets.

4InparticulaAra,kerandJacobso(n2001,p.489)andMizikand Jacobso(n2003,p.71) suggesatdetailedfunctioonnhowtocalpcurliactexesntuocmkrbeeotrufcronTm.hmatiossn,tsotcokcokurtesttuarn=nd(ic+nugdrirveidnyetenad-rs'pssrheavrieousyear'ssharepricex numbeorfcommonstockoutstanding)/ (previousyear's sharepricex numberof commonstock outstanding).

CornoraStoeciaRl esnonsibiCliutsyt.omSeartisfactiaonndM, arkVetalu1e7

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