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Multinationals and corporate social responsibility in host countries: Does distance matter?

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Abstract

Prior studies have found that foreign affiliates of multinational enterprises (MNEs) suffer from liability of foreignness (LOF). Foreign affiliates may be able to improve their social legitimacy and overcome LOF by demonstrating social commitment to host-country constituents through corporate social responsibility (CSR). If LOF is positively related to the distance between the home and host countries, and CSR activities confer social legitimacy benefits on foreign affiliates, we should expect CSR activities and distance to be positively related. However, we argue that, despite this potential motivation, foreign affiliates from more distant home countries are in fact less likely to engage in host-country CSR. Our argument focuses on the ways in which distance affects the MNE's willingness and ability to engage in CSR abroad. We also predict that host-country CSR reputation negatively moderates this relationship. Using Community Reinvestment Act data for foreign bank affiliates from 32 countries in the United States over 1990–2007, we find strong support for our hypotheses. The paper enriches our understanding of CSR practices in MNEs, and of when and how MNEs try to overcome legitimacy issues in host countries.

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Notes

  1. Scholars remain divided on the issue of whether an activity may fall within the CSR domain when there is a possibility of private benefits accruing to the firm. While some scholars argue for such a restriction, others recognize that it severely limits the scope of analysis, as it is difficult to prove that no private benefit results, even if it constitutes only a “warm glow” (Andreoni, 1990; Baron, 2008).

  2. Dacin, Oliver, and Roy (2007: 176) referred to social legitimacy in the context of a strategic alliance as an “establishment of an alliance with a partner perceived to be socially responsible.” Adapting their definition, we define it as compliance with societal rules and expectations with respect to (corporate) social responsibility.

  3. Historically, this idea has been exploited by various oppressive regimes attempting to legitimize genocide – by creating a rift between “us” and the “others,” who were portrayed as sufficiently different from “us” as to be considered subhuman. In fact, extinguishing an empathetic response may require special efforts, such as fragmenting the victim by concentrating on a particular part of their body (Hoffman, 1981).

  4. This effect should be particularly pronounced when comparing affiliates from distant regulatory regimes with domestic (host country) firms. We thank a reviewer for pointing this out.

  5. Some banks were pressured to achieve a “Satisfactory” rating, which indicates compliance with the regulation and is required by law.

  6. There were insufficient data for Hofstede's Confucian dynamism, so it was excluded from the computation.

  7. If we use a measure of overall distance based on the results of principal components analysis, the results are very similar, and remain substantively unchanged.

  8. We thank a reviewer for pointing out this important issue.

  9. The interval measure of population is too highly correlated with other MSA-level measures to be included, based on our multicollinearity diagnostics. However, we tried different cutoffs for constructing the dummy variable, and the results were robust to a wide range of alternative specifications.

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Acknowledgements

We thank our JIBS editor Paul Almeida and three anonymous reviewers for their helpful guidance in developing this paper. We also thank John Mezias, Laszlo Tihanyi, Lilach Nachum and Luis Gomez-Mejia for their comments on earlier drafts; Kim Clark, Indu Ramachandran, Carolee Rigsbee and Jessie Wang for their research assistance; and Len Bierman, who first drew our attention to the Community Reinvestment Act dataset. An earlier version of this paper was presented at the 2009 Academy of International Business Annual Meeting in San Diego, CA.

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Accepted by Paul Almeida, Area Editor, 7 September 2011. This paper has been with the authors for one revision.

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Campbell, J., Eden, L. & Miller, S. Multinationals and corporate social responsibility in host countries: Does distance matter?. J Int Bus Stud 43, 84–106 (2012). https://doi.org/10.1057/jibs.2011.45

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