Too Much of a Good Thing? The Boomerang Effect of Firms’ Investments on Corporate Social Responsibility During Product Recalls

Journal of Management Studies, 57(8), p1437-1472.

Posted: 6 Aug 2019 Last revised: 5 Jan 2022

See all articles by Alfred Z. Liu

Alfred Z. Liu

McMaster University

Angela Xia Liu

UNC Charlotte

Rui Wang

Peking University

Sean Xu

Tsinghua University - School of Economics & Management

Date Written: August 2, 2019

Abstract

Prior research shows that a good record of corporate social responsibility (CSR) has an insurance-like effect on shareholder value in negative events. We posit and provide empirical evidence that excessive CSR activities can also cause a boomerang effect during negative events. In the setting of product recalls, we show that overinvestment in CSR has a boomerang effect on shareholder value when a company with excessive CSR activities announces a recall. Further analysis shows that the boomerang effect is exacerbated when institutional ownership is low or when customer awareness is high. Our study adds to the literature new insights on how CSR affects shareholder value during a reputation crisis.

Keywords: Corporate Social Responsibility, Overinvestment, Boomerang Effect, Product Recall

Suggested Citation

Liu, Alfred and Liu, Angela Xia and Wang, Rui and Xu, Sean, Too Much of a Good Thing? The Boomerang Effect of Firms’ Investments on Corporate Social Responsibility During Product Recalls (August 2, 2019). Journal of Management Studies, 57(8), p1437-1472., Available at SSRN: https://ssrn.com/abstract=3431333

Alfred Liu

McMaster University ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Angela Xia Liu (Contact Author)

UNC Charlotte ( email )

7046871794 (Phone)
7046871794 (Fax)

HOME PAGE: http://https://belkcollege.uncc.edu/directory/angela-xia-liu

Rui Wang

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Sean Xu

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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