This paper aims to focus on the unique goal of understanding how marketing spending, a proxy for firm visibility, moderates the effects of corporate social responsibility (CSR) strengths and concerns on stock returns in the short and long terms. In contrast to the resource-based view (RBV) of the firm, the visibility theory, based on stakeholder awareness and expectations, offers asymmetric predictions on the moderation effects of marketing spending.
The predictions are tested based on data from KLD, Compustat and Center for Research in Security Prices from 2001-2010 and panel data based regression models.
Two results support the predictions of the visibility theory over those of the RBV. First, strengths are associated with higher stock returns, for low marketing spending firms, and only in the long term. Second, concerns are associated with lower stock returns, for high marketing spending firms, also only in the long term. A profiling analysis indicates that high marketing spending firms have high R&D spending and are more likely to operate in business-to-customer than business-to-business industries.
The two findings highlight the importance of coordination among chief marketing, sustainability and finance officers investing in CSR and marketing for stock returns, contingent on the firm’s marketing and R&D spending and industry characteristics.
This paper identifies conditions under which CSR is and is not related to stock returns, by uniquely considering three variables omitted in most past studies: marketing spending, CSR strengths and concerns and short- and long-term stock returns, all in the same study.
Corporate social responsibility
Stock market returns