THE RESOURCE-BASED VIEW OR STAKEHOLDER THEORY: WHICH BETTER EXPLAINS THE RELATIONSHIP BETWEEN CORPORATE SOCIAL RESPONSIBILITY AND FINANCIAL PERFORMANCE?

Abstract

Stakeholder behavior and reputation are held to be the two main factors explaining the positive correlation between corporate social responsibility and financial performance. To date, however,
 researchers have not determined which of these factors is of greater significance. The results of this study indicate that the relative effects of stakeholder behavior and reputation are affected by market conditions. During a crisis, the former factor plays a greater role, while the latter becomes more prominent during the period of market recovery in the wake of a crisis. These findings have important practical ramifications as they provide guidance to companies on how to allocate their CSR budgets depending on the state of the economy to maximize their effect on the bottom line.