Social Responsibility in New Ventures

Strategic Management JournalStrat. Mgmt. J., 33: 11351153 (2012)

Published online EarlyView in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.1962Received 8 July 2010; Final revision received 7 February 2012

SOCIAL RESPONSIBILITY IN NEW VENTURES:PROFITING FROM A LONG-TERM ORIENTATIONTAIYUAN WANG1* and PRATIMA BANSAL21 IE Business School, Madrid, Spain2 Richard Ivey School of Business, The University of Western Ontario, London,Ontario, Canada

Socially responsible activities help create business value, develop strategic resources, and insureagainst risks, but also cost money and distract management. These prior findings are mainlybased on established corporations and may not extend to new ventures in which the liabilityof newness may suppress some positive effects and amplify some negative impacts of sociallyresponsible activities. New ventures whose strategic decisions have a long-term orientation,however, are able to counteract their liability of newness and thereby generate net positiveeconomic returns. We tested these relationships by surveying the chief executive officers andpresidents and studying the signature Web sites of 149 new ventures. Copyright 2012 JohnWiley & Sons, Ltd.

INTRODUCTION

Considerable research has been directed to theexploration of the economic benefits of corpo-rate social responsibility (CSR). By furtheringsocial good and going beyond legal requirements,CSR activities help create business value, developstrategic resources, and insure against risks, butalso cost money, distract managers, and aggra-vate relationships between principals and agents(Margolis and Walsh, 2003; Orlitzky, Schmidt, andRynes, 2003). On balance, though, the positiveeffects of CSR activities generally outweigh thenegative, resulting in net neutral or positive eco-nomic returns (Margolis, Elfenbein, and Walsh,2007; Margolis and Walsh, 2003; Orlitzky et al.,2003).

Keywords: long-term orientation; corporate social respon-sibility; new ventures; financial performance Correspondence to: Taiyuan Wang, IE Business School,C/Alvarez de Baena, 4, Madrid, 28006, Spain.E-mail: [email protected]

These findings are mainly drawn from estab-lished corporations; the context of new venturesremains largely unexplored. This omission is quitesurprising, given that new ventures are a signifi-cant driver of the economic engine and have sub-stantial social impacts. The founding rate of newventures each year represents almost a stagger-ing 10 percent of the total business population(Aldrich and Ruef, 2006), which serves to cre-ate half of all new jobs, drives major sources ofinnovations, and contributes substantially to eco-nomic growth (Moutray, 2009). However, newventures have also been reported to dispropor-tionately harm the environment (e.g., by creatingcommercial wastes and carbon dioxide emissions)(Worthington and Patton, 2005) and operate ille-gally more often than their established corporatepeers (Webb et al., 2009).

We redress this oversight by examining the eco-nomic returns of CSR activities for new ventures.We argue that the liability of newness, whicharises from the short temporal existence of newventures, may impede some positive effects and

Copyright 2012 John Wiley & Sons, Ltd.

1136 T. Wang and P. Bansal

intensify some negative effects of CSR activities,resulting in overall negative economic returns. Wealso posit that new ventures whose strategic deci-sions have a long-term orientation, versus thosewith a short-term focus, can attenuate the impactsof their liability of newness by better integrat-ing CSR attributes into their product features andproduction processes, identifying implicit valuefrom stakeholder relationships developed throughCSR activities, seeking insurance-type benefits ofCSR investments, and reducing managerial distrac-tions for the conduct of CSR activities. As thesemechanisms suggest, we found a negative relation-ship between CSR activities and financial perfor-mance for a sample of 149 new ventures, and thatthis relationship was positively moderated by thedegree of these new ventures long-term orienta-tion.

This study contributes to CSR research in twoways. First, it brings new ventures directly into theCSR spotlight, recognizing their difference fromestablished organizations and pointing to the needfor more thoughtful consideration of new venturesin the world of CSR. Second, this study recognizesthe importance of time in CSR research, expressedin a ventures newness and long-term orientation.Notions of time have been virtually absent inCSR research, despite the fact that time playsan important role in CSR decisions (Slawinskiand Bansal, 2009). Our efforts at recognizing theinterplay between the more objective aspect oftime, reflected in a ventures newness, and themore subjective aspect of time, reflected in aventures long-term orientation, potentially opennew avenues of CSR research.

THEORY AND HYPOTHESES

The economics of CSR

CSR refers to the firms consideration of, andresponse to, issues beyond the narrow economic,technical, and legal requirements of the firm(Davis, 1973: 312). An activity is socially respon-sible only if it furthers the social good, outstripsthe firms economic goals, and goes beyond therequirements of the law (McWilliams and Siegel,2001). Typical CSR activities include develop-ing products that have social and environmen-tal features, adopting production methods thatreduce environmental impacts, employing human

resource systems that care for employees and nur-ture labor relationships, investing in infrastructuredevelopment for local communities, and pursu-ing philanthropic initiatives (Aguilera et al., 2007;McWilliams and Siegel, 2001).

A central area of inquiry in this field is whetherand how CSR activities affect firms economicreturns (Griffin and Mahon, 1997; Hillman andKeim, 2001; Hull and Rothenberg, 2008; Mackey,Mackey, and Barney, 2007; Margolis et al., 2007;McWilliams and Siegel, 2000; Orlitzky et al.,2003). Prior research suggests that CSR activi-ties can have both positive and negative impactson firms financial performance (Waddock andGraves, 1997).

First, there is business value that resides in theinteraction between CSR activities and businessstrategies (Porter and Kramer, 2006). Consumershave become aware of social and environmentalissues and developed preferences for products withCSR attributes (Brown and Dacin, 1997; Luo andBhattacharya, 2006). As a result, a firm can createa certain level of CSR by embodying its productswith CSR attributes (such as pesticide-free fruit)or by using CSR-related resources in its produc-tion process (such as naturally occurring insectinhibitors and organic fertilizers) (McWilliamsand Siegel, 2001: 119), thereby achieving suc-cessful differentiation from its competitors (Fom-brun, Gardberg, and Barnett, 2000; Porter andvan der Linde, 1995). A firm may also employenvironmentally friendly technologies to reducethe costs of energy consumption and waste recy-cling, thus realizing overall operating efficiency(King and Lenox, 2002; Klassen and Whybark,1999). Furthermore, the consumer base for prod-ucts with CSR attributes is growing (Brown andDacin, 1997; Luo and Bhattacharya, 2006), sug-gesting the burgeoning of business opportunitiesfor firms that are able to create value through theirCSR activities.

Second, CSR activities help build strategicresources, including stakeholder relationships andpositive CSR reputations. People classify them-selves into social categories based on stereotypicalperceptions of themselves and others (Ashforth andMael, 1989). Therefore, firms that constantly pur-sue CSR activities are attractive to stakeholderswith a self-image of social responsibility (Turbanand Greening, 1997), leading to close stakeholderrelationships (Donaldson and Preston, 1995; Jones,1995). Through CSR activities, a firm signals to the

Copyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 11351153 (2012)DOI: 10.1002/smj

Social Responsibility in New Ventures 1137

public that it is a good corporate citizen, result-ing in a positive CSR reputation (Fombrun andShanley, 1990). Positive CSR reputations enablefirms to obtain and sustain legitimacy (Bansal andRoth, 2000), charge premiums for products and/orservices (Klassen and McLaughlin, 1996), recruitand retain quality employees (Greening and Tur-ban, 2000; Turban and Greening, 1997), and attractinvestors and capital providers (Mackey et al.,2007).

Third, CSR activities insure against corporaterisks (Godfrey, 2005; Godfrey, Merrill, andHansen, 2009). Because socially responsible firmsgenerally operate at standards beyond legal require-ments (Carroll, 1991), their CSR activities mayprevent additional costs incurred to comply withstricter industry standards or legal requirements(Hart, 1995). Furthermore, CSR activities mayhelp avoid negative impacts of unexpected acci-dents (Bansal and Roth, 2000). If a socially respon-sible firm experiences a harmful event, the moralcapital it has accrued through CSR activities maymitigate value degradation and negative sanctionsfrom major stakeholders (Godfrey, 2005; Godfreyet al., 2009).

Along with these positive effects, CSR activ-ities can also undermine economic returns byadding costs, distracting managers, and/or creatingagency problems. First, the more resources a firmdeploys for its CSR activities, the fewer resourcesit has available for its core business (McWilliamsand Siegel, 2001; Waddock and Graves, 1997).Although a firm may build value by develop-ing products with CSR attributes (Porter and vander Linde, 1995), the research and development(R&D) costs incurred may offset the economicvalue earned (McWilliams and Siegel, 2000). Afirm that has limited access to financial capital mayalso need to choose between CSR investments andothers that are more closely associated with keep-ing pace in the competitive environment, which, ifnot tended, can result in competitive disadvantage(Barney, 1991).

Second, CSR activities may distract managersfrom their core duties. Managers responsibilitiesmainly pertain to the firms business activities, andthey may be incapable of, or at least not com-petent at, pursuing CSR activities (Davis, 1973).CSR requires building cooperation among differentstakeholders (Etzion, 2007; Hart, 1995), who oftendiffer in attitudes and beliefs about what and howsocial and environmental issues should be solved

(Petts et al., 1999). Managers must reconcile thesedifferences to move the firm toward CSR, whichdistracts them from their core duties.

Third, managers may pursue their own intereststhrough CSR activities at the cost of shareholderwealth (Wright and Ferris, 1997), thereby creatingan agency problem (Eisenhardt, 1989). The pur-suit of CSR activities can create substantial bene-fits to managers. Solving social and environmentalissues can improve managers public image, whichin turn helps them gain political power, publicrespect, and future career opportunities (Wrightand Ferris, 1997). Meanwhile, the insurance-typebenefits of CSR may protect managers more thanshareholders: public embarrassment and harass-ment can ruin managers careers (Wright and Fer-ris, 1997), whereas shareholders can avoid suchunsystematic risks through their investment port-folios.

The above review of prior CSR research basedon established corporations suggests that CSRactivities have both positive and negative effectson economic returns (Strike, Gao, and Bansal,2006; Waddock and Graves, 1997). These effects,however, may not apply to new ventures becausetheir strategic and organizational properties differsubstantially from those of established organiza-tions (Hannan and Freeman, 1989; Stinchcombe,1965).

New ventures: short of time for CSRNew ventures are for-profit organizations that haveexisted for a short period of time since beingfounded (Zahra, 1996).1 Although a specific timecriterion to discriminate new ventures from estab-lished organizations may seem arbitrary (Zahra,Ireland, and Hitt, 2000), eight years is a com-monly used benchmark (Atuahene-Gima and Li,2004; Zahra, 1996). Generally speaking, such firmsare still in the entrepreneurial, or birth and growth,stages of their life cycle (Miller and Friesen, 1984;Quinn and Cameron, 1983).

New ventures suffer from the liability of new-ness (Stinchcombe, 1965); they lack sophisticatedoperating processes and routines, systems andstructures for efficient internal communications,and the knowledge to establish stable relationships

1 In this study, we exclude newly established social enterprises,whose primary goal is to address social issues and for whomeconomic returns are less relevant.



with clients, suppliers, and other stakeholders (Bar-ringer and Greening, 1998; Bruderl and Schussler,1990). By definition, newness is due to the shorttime a new venture has existed. From a learningperspective (Amit, 1986), this shortness of timeconstrains the new ventures accumulated knowl-edge and capabilities, resulting in a liability ofnewness.

The liability of newness may weaken some pos-itive effects and intensify some negative effectsof CSR activities on new ventures financial per-formance. First, newness may inhibit new ven-tures ability to realize economic returns fromCSR investments. To create business value throughCSR, a firm needs to incorporate social and envi-ronmental properties into product features (Porterand van der Linde, 1995). Such product develop-ment often consumes substantial resources(McWilliams and Siegel, 2001) and depends onthe firms previous innovation capabilities (Cohenand Levinthal, 1990). Because new ventures haveexisted for only a short period of time and oftenhave capital constraints (Stinchcombe, 1965), theyneed time to develop the resources and capabilitiesrequired for incorporating social and environmen-tal innovations into product features.

Second, newness may restrict new venturesabilities to harvest the benefits from stakeholderrelationships and positive reputations arising fromCSR. A firms ability to generate economic returnsfrom its stakeholder relationships relies on itsstakeholder influence capacity, which helps toidentify, act on, and profit from opportunities toimprove stakeholder relationships through CSR(Barnett, 2007: 803). A firm builds its stake-holder influence capacity by accumulating knowl-edge about its key stakeholders, which is a path-dependent process that takes time to be realized(Barnett, 2007). Similarly, newness makes it dif-ficult for new ventures to build a positive CSRreputation because efforts at quickly building animage as an upstanding corporate citizen generallyfail (Fombrun et al., 2000: 102).

Third, newness may make the insurance typebenefits from CSR activities irrelevant for newventures. Unlike large established firms that arecarefully monitored by the public (Ullmann, 1985),new ventures may escape public scrutiny and, thus,their unexpected accidents may not be caught bythe watchful eye of the public (Jenkins, 2004,2006). Furthermore, new ventures may evenoperate illegally (Webb et al., 2009), implying

they may not need to protect themselves throughCSR activities as established corporations often do.

The negative effects of CSR activities, how-ever, may be intensified for new ventures throughtwo mechanisms. First, the capital costs associatedwith CSR activities are often high (Brammer andMillington, 2008), stifling new ventures efforts tobuild economies of scale. Although overall costscan be reduced by employing technologies thatconsume less energy, generate less waste, or usefewer materials (King and Lenox, 2002; Klassenand Whybark, 1999), the benefits that accrue fromthese lower costs take time to materialize, whereasthe capital costs are immediate. For example, anew venture in our sample was grateful to thegovernment for its development of a waste treat-ment facility; the cost of developing such a facilitywould have been impossible for this new ventureor any single small business to bear.

Second, newness may magnify the managerialdistractions from CSR activities. New venturesoften need to fully commit their resources andcapabilities to their core business activities, suchas product and market development, engineering,manufacturing, and logistics (Barringer and Green-ing, 1998; Bruderl and Schussler, 1990). Becausefounders and managers of new ventures may lackthe necessary skills (Davis, 1973), the pursuitof CSR activities may distract them from corebusiness activities. Funding CSR activities mayalso cause tensions and conflicts among divisionsthat compete for organizational resources (Lewis,2000), which may result in negative outcomes fornew ventures because they did not take the time todevelop trust among organizational members (Bar-ringer and Greening, 1998; Bruderl and Schussler,1990).

Certainly, we acknowledge that new ventures dobenefit from some CSR activities. A new ventureoften relies on its local community for resources(Peredo and Chrisman, 2006), and thus its sup-port for local community may enhance its resourceendowment. New ventures often lack the finan-cial capital to pay high salaries to attract toptalent. CSR activities, however, offer an alterna-tive benefit with which to attract and retain qual-ity employees willing to work for less money insocially responsible firms (Greening and Turban,2000; Turban and Greening, 1997). However, byweighing the major negative impacts caused bythe liability of newness against these benefits, wesuggest that the overall effects of CSR activities



on economic returns for new ventures tend to benegative.

Hypothesis 1: There is a negative relationshipbetween CSR activities and financial perfor-mance among new ventures.

The importance of long-term orientation

In the previous section, we argued that new ven-tures are likely to experience negative economicreturns for their CSR activities because of theliability of newness. The notion of newness isbased on an objective view of time, which is oftenreferred to as clock time (Mosakowski and Ear-ley, 2000: 797). In this section, we suggest thatthe impacts of newness are contingent upon thenew ventures temporal orientation, a subjectiveperspective of time reflected in the temporal depthof its strategic decisions (Ancona, Okhuysen, andPerlow, 2001; Fiegenbaum, Hart, and Schendel,1996; Lee and Liebenau, 1999).

A firms temporal orientation can range frombeing short to long; strategic decisions with ashort-term orientation emphasize efficiency,whereas decisions with a long-term orientationemphasize effectiveness (Covin and Slevin, 1989;Venkatraman, 1989). Although long-term effec-tiveness and short-term efficiency may not bemutually exclusive, they often reflect differentstrategic priorities and require different organi-zational processes (Hamel and Prahalad, 1989,1994). By building a vision that directs resourceallocation and inspires organizational members toachieve competitive advantage in the future (Brewsand Purohit, 2007; Grant, 2003), firms with a long-term orientation often engage in activities that donot necessarily generate immediate returns, suchas investing in R&D (Miller and Friesen, 1982;Venkatraman, 1989), spotting trends in consumerspreferences that may lead to new markets (Con-nor, 1999; Narver, Slater, and MacLachlan, 2004),and developing strategic resources that do not haveexplicit short-term value (Hamel and Prahalad,1989, 1994).

Firms with a long-term orientation can offsetthe liability of newness in the pursuit of CSRby making strategic decisions that better realizethe benefits of CSR activities. First, a long-termorientation widens the firms field of vision, whichenables the firm to recognize the potential value of

CSR investments. As a result, firms with a long-term orientation tend to choose a technology thatwill endure and emphasize continuous innovation,even though doing so may involve greater short-term costs.

Second, firms with a long-term orientation tol-erate or even encourage the development of strate-gic resources that do not offer explicit short-termvalue (Hamel and Prahalad, 1989, 1994), allowingthese firms to identify implicit value from complexstakeholder relationships built from CSR activities.Rouse and Daellenbach (1999) found that a com-panys drivers developed a close relationship withthe customers to whom they delivered products,but the immediate value of this relationship wasnot apparent. If the firm had emphasized short-termprofitability and outsourced its delivery services, achoice that was irresponsible to its drivers, the firmwould have lost this valuable relationship with itscustomers. This example suggests that, comparedwith firms that focus on short-term profitability,firms with a long-term orientation can draw valuefrom stakeholder relationshipsvalue that is oftenimplicit and difficult to identify (Barnett, 2007).

Third, firms with a long-term orientation drawon a greater body of information in decision mak-ing, which helps to realize more of the insurancetype benefits associated with CSR activities. Forexample, a fishing company in our sample indi-cated on its Web site that by actively participat-ing in the collection of marine data for scien-tific research, it understood the potential issuesin the marine environment. As a result, the com-pany was able to develop and adopt fishing activ-ities that will not harm the marine environment,thereby avoiding fines and generating sustainablereturns. Meanwhile, firms with a long-term ori-entation often operate well beyond current legalrequirements, avoiding the compliance costs thatcome with stricter laws.

Fourth, firms with a long-term orientation reduceCSR-related managerial distractions by aligningthe interests and motivation of different stakehold-ers, who may otherwise hold different or evenconflicting attitudes and beliefs about what andhow social and environmental issues should besolved (Petts et al., 1999). For example, a firmin our sample successfully engaged local investorsto collectively support the development of tech-nology companies in the region by presenting avision that the whole community would benefitsubstantially from these technology firms over the



long run. This example suggests that, guided bya vision rather than prodded by short-term con-siderations (Fiegenbaum et al., 1996), firms witha long-term orientation can align the interests ofinternal and external stakeholders, facilitating theimplementation of CSR.

The above discussion suggests that a long-term orientation may attenuate the major negativeimpacts of the liability of newness and, thus, canhelp new ventures realize economic returns fromCSR activities. Therefore, as long-term orientationincreases, the negative relationship between CSRand new venture performance (Hypothesis 1) willdecrease in its magnitude, or even become posi-tive, if the long-term orientation is strong enough.Put differently, a long-term orientation can be con-sidered a positive factor that alters or reverses therelationship between CSR and new ventures finan-cial performance.

Hypothesis 2: The relationship between CSRactivities and financial performance among newventures is positively moderated by the degreeof new ventures long-term orientation.

DATA AND METHODS

SampleThe sample was drawn from Dun & Bradstreets2008 Guide to Canadian Manufacturers Direc-tory. Manufacturers are particularly relevant tothis study because they often have substantialsocial and environmental impacts (Williamson,Lynch-Wood, and Ramsay, 2006). We definednew ventures as firms eight years old or younger(Atuahene-Gima and Li, 2004; Zahra, 1996). Weexcluded firms that had fewer than 10 employeesbecause such small firms often do not have a well-defined strategy (Covin, Green, and Slevin, 2006).We also excluded diversified firms because of thevariance in the social and environmental propertiesof their different products (McWilliams and Siegel,2001). Based on these criteria, we identified 846new ventures with valid contact information forchief executive officers (CEOs) or presidents.

Data sources

Data for long-term orientation and financial per-formance were collected through a survey targeted

to the CEOs and presidents of these new ventures,the most knowledgeable individuals with respectto their firms strategic intents and performancecriteria (Miller and Friesen, 1984). Small and newenterprises generally do not publicize their finan-cial reports (Dess and Robinson, 1984) and tendto have a variety of performance criteria that maynot be fully reflected by their financial reports(McWilliams and Siegel, 2001). Therefore, using asurvey to collect data for new ventures long-termorientation and financial performance was not onlypractical but also appropriate.

We made several efforts to assure a responsefrom the CEO or president of the firm. Ourquestionnaire was addressed directly to the CEOor president by using the individuals name, notmerely the title. The CEO or president was underno obligation to respond and could discard thequestionnaire if he or she did not wish to completeit. A number of the completed questionnaires con-tained written comments on our study and weresigned and dated by the CEOs or presidents, indi-cating their personal participation.

Given that different respondents may prefer dif-ferent types of surveys (Kaplowitz, Hadlock, andLevine, 2004), we used both mail and online ques-tionnaires to encourage responses. From June toOctober 2008, five rounds of contacts (invita-tion letter, first-round questionnaire, fax reminder,second-round questionnaire, and phone callreminder) (Dillman, 2007) generated 204 responses(42 online and 162 by mail). Eight questionnairescontained significant missing values, resulting in196 usable data points (response rate = 23%).We found no evidence of response bias (Arm-strong and Overton, 1977) by testing for the dif-ferences in (a) response rates across industries andregions; (b) age, sales, and number of employ-ees between responding and nonresponding firms;and (c) all variables in the survey between earlyand late responding firms and between online andmail responding firms. We found no evidence forcommon method bias from the method-factor test(Liang et al., 2007).

We drew CSR data from these firms signatureWeb sites following the approach taken in priorresearch (Chapple and Moon, 2005). Trying toconnect with general audience and key stakehold-ers, companies use their Web sites to report CSRconsiderations and activities (Esrock and Leichty,1998). Companies signature Web sites generallycontain information consistent with other corporate



archival documents such as annual reports (Bansal,2005; Maignan and Ralston, 2002), suggesting thevalidity of using Web sites to collect CSR data(Chapple and Moon, 2005). By drawing on dif-ferent data sources for CSR and for long-termorientation and financial performance, our designfurther avoids common method bias (Podsakoffet al., 2003).

Immediately after the 196 firms responded tothe survey, the first author searched the Inter-net and found 149 of these firms had signa-ture Web sites, from which the author savedall the introductory Web pages, including AboutUs, History, and Mission and Vision State-ments. Guided by previous studies comprehen-sive descriptions of CSR activities (Aguilera et al.,2007; Carroll, 1991; Margolis and Walsh, 2003;McWilliams and Siegel, 2001; Orlitzky et al.,2003), the author and two well-trained researchassistants (Ph.D. candidates in management) inde-pendently read the saved Web pages to seek infor-mation about these firms CSR activities.2

The final sample included 149 new ventures,representing 18 industries (categorized by two-digit Standard Industrial Classification [SIC]codes) in the manufacturing sector (SIC: 2039).On average, these new ventures were 5.4 years old,employed 46 people, and generated nine millionCanadian dollars in sales.

Measures

Financial performanceIn the questionnaire (see Appendix), we measuredfinancial performance through a nine-item, seven-point scale that was validated in prior research(Stam and Elfring, 2008). The nine items includedsales level (P1), market share (P2), sales growth(P3), cash flow (P4), ability to fund businessgrowth from profits (P5), return on assets (P6),return on equity (P7), return on sales (P8), andoverall firm performance/success (P9). Also usingDun & Bradstreets database, Ling, Zhao, andBaron (2007) found such a performance scale tobe positively and significantly related to objectivedata, suggesting good consistency.

2 Empirical results reported in the paper were based on theauthors coding. The coding of the two research assistants wasused to examine interrater reliability.

Long-term orientation (LTO)We measured long-term orientation using a four-item, seven-point scale that was validated in priorresearch (Miller and Friesen, 1982; Venkatraman,1989). The four items were: 1) As your firmdefines strategies, you generally emphasize long-term (over 5 years) goals and strategies (LTO1);2) Your firms criteria for resource allocationlargely reflect long-term considerations (LTO2);3) Your firm emphasizes basic research to buildfuture competitive advantage (LTO3); and 4) Asyour firm defines strategies, your major concernis how to build future competitive advantage(LTO4).

Corporate social responsibility (CSR)We measured CSR by counting the number ofdiscrete activities that a firm pursued. From eachof the 149 firms Web pages (About Us, His-tory, and Mission and Vision Statements), thefirst author and a research assistant independentlyidentified discrete CSR activities. We employedthe following criteria to ensure the validity of thiscount measure. First, we focused on statementsthat indicated specific CSR activities and excludedbroad statements (such as We are committed toprotecting the earth), which, we reasoned, couldexist in the absence of real activities. Second, weexcluded statements suggesting that the firms corebusiness was to fulfill specific social or environ-mental needs. For example, a firm in our sam-ple produced a type of equipment that helped itscustomers reduce energy consumption. Althoughreducing energy consumption is CSR-related, thenature of the firms business does not indicate thefirm pursued a CSR activity; it just addressed a par-ticular need of its customers. Third, we excludedstatements suggesting the firms intention to dosomething socially responsible or environmentallyfriendly (will do statements). For example, a firmin our sample claimed it would pursue the ISO14001 environmental standard. Although pursuingthe ISO 14001 standard is a specific CSR activity,the firm had not yet done so. By excluding suchwill do statements, this CSR measure also helpedcontrol for, or at least reduce, the reverse causality(i.e., financial performance leads to CSR), giventhat firms with better financial performance aremore likely to have the intention to pursue CSRactivities (Orlitzky et al., 2003).



Table 1. Examples of discrete CSR activities

CommunityWe give at least 10 percent of our profits back to the community.We contribute to the development of a local business association.We help to develop an educational program of a local school.We open communication about site operations and productions to the community.. . .Employee relationsWe build an equal working environment that is free of harassment and discrimination.We develop a facility that enables us to operate at minimum risk to employees.We develop a working environment that emphasizes work relationships.We foster teamwork, support ongoing people training and development, and provide effective communication.. . .EnvironmentWe implement the ISO 14001 standard to address environmental issues.We pack shipments with biodegradable materials.We develop and implement an active downgrade scheme.We develop a facility that enables us to reduce emissions.. . .Products & productionWe use GMO-free (genetically modified organisms) ingredients for our products.We produce products using recycled materials.We produce products using natural materials.We implement the HACCP (Hazard Analysis and Critical Control Points) in our production.. . .Other stakeholdersWe support charitable organizations, locally and internationally.We continuously donate products to fund-raising events.We sponsor kids programs, sports teams, school trips, and so on.We raise Canadian kids awareness for families in Africa through our programs.. . .

Based on these criteria, 145 discrete CSR itemswere identified by the first author and the researchassistant. Next, the second author inspected theseitems and eliminated seven items that were notconsidered to be sufficiently discrete and specific,resulting in 138 CSR activities pursued by 47new ventures. These CSR activities can be cate-gorized into five groups, including community,employee relations, environment, products &production, and other stakeholders (Table 1),which generally align with the five major types ofCSR activities reported in the Kinder, Lydenberg,Domini (KLD) social screens (Hillman and Keim,2001; Waddock and Graves, 1997). For each firm,we added all its discrete CSR activities and useda formative index to measure its CSR.

To investigate the moderating effect of long-term orientation on the relationship between CSRactivities and new ventures financial performance,we formed an interaction term by multiplyingthe four indicators of long-term orientation andthe formative index of CSR. These items were

centered before being multiplied in order to reducemulticolinearity (Aiken and West, 1991).

Control variablesRecently, CSR researchers have paid increasingattention to CSR disclosure, which refers to afirms self-reported CSR information without con-firming real CSR activities (Maignan and Ral-ston, 2002; Ullmann, 1985). Because self-reportedCSR information is not audited (Gray, Kouhy, andLavers, 1995), a firm may use CSR disclosure topresent its beliefs and attitudes toward social andenvironmental issues, which may diverge from itsactual CSR activities. Furthermore, a firm mayuse CSR disclosure to advertise the CSR attributesof its products and/or services, and such adver-tising may overstate the firms real CSR efforts(McWilliams and Siegel, 2000). Thus, it is optimalto control for the effect of CSR disclosure, giventhat our hypotheses are developed on the basis ofCSR activities.



Table 2. CSR keywords and frequency of appearance

CSR keywords Frequency CSR keywords Frequency CSR keywords Frequency

Accountability 1 Exceed (standard) 18 Power 4Biodegradable 4 Fair 5 Preservation 4Bio-fuel 1 Fundraising 1 Recycle 23Charity 3 Future (generation,

society, environment)6 Renewable 1

Community 18 Global warming 1 Responsibility 11Conservation 5 GMO-free (genetically

modified organisms)2 Reuse 3

Contamination 3 Green/Greener 16 Risk 1Corporate citizenship 2 HACCP (hazard analysis

and critical controlpoints)

3 Safety 31

Donation 4 Harmful 2 Security 5Downgrade 1 Hazard/hazardous 2 Sponsor 1Drug-free 2 Health 20 Stewardship 1Earth 4 Honest 4 Surpass (standard) 1Eco- (system, friendly) 4 Integrity 9 Sustainability/sustainable 5Emission 4 ISO14001 2 Trans-fat-free 1Energy 16 Nature 24 Transparency 1Enrich 2 Non-invasive 3 Trees 3Environment 75 Nontoxic 2 Trust/trusted 9Equality 1 Organic 4 Waste 18Ethics 4 Philanthropy 1 Wellbeing 1

We measured CSR disclosure by examining thenumber of times that CSR keywords appearedon these firms Web sites (About Us, History,and Mission and Vision Statements pages). Thefirst author and another research assistant inde-pendently read each of the 149 firms Web sites,recorded sentences that reflected the firms CSRconsiderations and activities, and identified CSRkeywords from these sentences. We did not distin-guish between a keywords different forms (e.g.,responsibility, responsible, and responsibly) andtenses (e.g., recycle and recycled ), but listed differ-ent keywords that possess similar meanings (e.g.,donate and sponsor). As shown in Table 2, weidentified 57 CSR keywords, which appeared atotal of 403 times on these firms Web sites.3

We measured CSR disclosure using the formulaCSRDisclosure =

(Ni=1

Ti

)/K , where N is the num-

ber of different CSR keywords that appeared onthe firms Web site, Ti , is the number of times

3 Seven words were identified by only the author or the researchassistant, including commitment, exceed, goodwill, quality, stake-holders, surpass, and training. We reexamined these words intheir contexts and decided to treat exceed and surpass (e.g.,in terms of industry standards and legal requirements) as CSRkeywords. The other five words are not CSR related.

that keyword i appeared, and K is the number oftotal general words on the firms Web site. Wedivided by K because firms that have large Websites are likely to include more CSR keywords thanfirms that have small Web sites. The intraclass cor-relation coefficient for CSR disclosure coded bythe author and by the research assistant was 0.90,suggesting good interrater reliability (Shrout andFleiss, 1979).

We also controlled for several variables col-lected from Dun & Bradstreets database. Firmsoperating in different industries may have dif-ferent benefits and pressures for the pursuit ofCSR activities (Hull and Rothenberg, 2008; Russoand Fouts, 1997). We used 17 dummy variablesto control for the differences in the 18 indus-tries. Regional regulations and policies may affectCSR decisions of local firms (Campbell, 2007).We used two dummies to control for these ven-tures places of origin (i.e., Western, Central, andEastern Canada). Different markets may have dif-ferent social and institutional requirements forCSR (Campbell, 2007). We used two dummiesto control for these firms market scope, whichcaptured the countries to which the new ven-tures sell, including only the Canadian market, theNorth American market (Canada and the United



States), and the global market (Canada, the UnitedStates, and at least one other country). Large firms,which are generally older, may realize economiesof scale from their CSR investments (McWilliamsand Siegel, 2001). We controlled for firm size (logof sales and log of number of employees) and firmage (number of years since the firm was estab-lished).

It may be innovation rather than CSR thatactually contributes to financial performance (Luoand Bhattacharya, 2006; McWilliams and Siegel,2000). To exclude this possibility, we controlledfor product and process innovations collected fromthe survey. As shown in the Appendix, the sur-vey items Inno Prd1 and Inno Prd2 capture thedegree and amount of product innovation, anditems Inno Prc1 and Inno Prc2 reflect the degreeand amount of process innovation. If a firm didnot have product or process innovation, zero wasassigned to the corresponding items.

ANALYSES AND RESULTS

We tested the two hypotheses using the partial leastsquares (PLS),4 which permits variables to haveboth antecedents and consequences in the model(Barclay, Higgins, and Thompson, 1995). A firmsdecision to pursue CSR activities may be basedon its belief that CSR will help improve financialperformance, and firms with better financial per-formance can better afford CSR investments. Priorresearch has noted that large established firms insome industries are likely to achieve economies ofscale from CSR investments (Hillman and Keim,2001; Hull and Rothenberg, 2008; Waddock andGraves, 1997). Therefore, CSR may be endoge-nous to factors such as industry, firm size, andfirm age. The use of PLS simplifies the modelingof CSR as an endogenous variable.

The measurement modelThe descriptive statistics and correlations of all themeasurement items except dummies of differentindustries, places of origin, and market scope arelisted in Table 3. Items used to measure the samefactor were highly correlated. CSR activities andCSR disclosure had a high correlation (r = 0.64, p< 0.001), which was still lower than the cut value

4 Multiple regressions generated qualitatively identical results.

0.70 (Nunnally, 1978), suggesting that they werelikely to have captured different things. However,such a high correlation may cause multicolinearity,leading to biased results. We checked varianceinflation factors (VIFs) for all the variables andfound that the highest VIF was 2.55. Therefore,multicolinearity was not an issue (Paetzold, 1992).

To examine the reliability, convergent validity,and discriminant validity of these measures, weconducted a PLS model by using the independentand control variables to predict CSR and financialperformance. As shown in Table 4, reliability andconvergent validity were evidenced by the load-ings for all items being well above 0.70 on theirrespective factors (Nunnally, 1978), and by thehigh average variance extracted and Cronbachsalpha (Barclay et al., 1995). The loadings of theseitems on their factors were much higher than theircross-loadings on other factors, which were alllower than the cut value 0.70, suggesting satisfac-tory discriminant validity (Barclay et al., 1995).

The structural modelFigure 1 provides the standardized path coeffi-cients of the structural model, in which CSR wasendogenous and predicted by firm size, firm age,long-term orientation, and dummies of industry,places of origin, and market scope. Firms gener-ally report what they actually do (Abrahamson andPark, 1994; Chapple and Moon, 2005), and, thus,there should be a path from CSR activities to CSRdisclosure.

The path from CSR activities to financial perfor-mance was negative and significant (Beta =0.25,p < 0.05), supporting Hypothesis 1. We calcu-lated the unstandardized path coefficient of CSRactivities by B = Beta SDPERF/SDCSR, whereBeta is the standardized coefficient, and SDPERFand SDCSR are the standard deviations of financialperformance and CSR (Bring, 1994). The unstan-dardized coefficient of CSR was 0.14, suggestingthat each CSR activity was related to a 0.14pointdecrease in the 17 performance scale. The stan-dard deviation of financial performance was 1.26(Table 4). The 0.14-point decrease in the 17 per-formance scale is equivalent to 0.11 standard devi-ations (0.14/1.26), which included approximatelynine percent of firms in the sample. Thus, as a newventure pursued one more CSR activity, its per-ceived financial performance compared with com-petitors would be ranked nine percentiles lower.



Tabl

e3.

Des

crip

tive

stat

istic

san

dco

rrel

atio

ns

Mea

nS.

D.

Min

Max

12

34

56

78

910

1112

1314

1516

1718

1920

21

1.N

umbe

rof

empl

oyee

s3.

331.

002.

406.

18

2.Sa

les

1.72

0.93

05.

190.

853.

Age

5.40

2.01

18

0.0

40

.07

4.CS

Rac

tiviti

es0.

932.

250

160.

030.

100.

01

5.CS

Rdi

sclo

sure

0.00

940.

0153

00.

0742

0.02

0.06

0.00

0.64

6.LT

O1

4.14

1.65

17

0.0

70

.11

0.02

0.08

0.08

7.LT

O2

3.95

1.62

17

0.0

20

.10

0.02

0.08

0.08

0.73

8.LT

O3

4.19

1.64

17

0.1

70

.17

0.0

20.

020.

010.

520.

549.

LTO

44.

991.

441

70

.03

0.0

10.

090.

110.

090.

470.

450.

7210

.Inn

oPr

d13.

812.

260

70.

040.

020

.09

0.24

0.09

0.13

0.07

0.26

0.22

11.I

nno

Prd2

4.02

2.14

07

0.03

0.00

0.0

10.

140.

070.

160.

120.

250.

250.

7012

.Inn

oPr

c13.

522.

380

70.

030

.06

0.0

70.

010.

100.

130.

100.

130.

020.

290.

3213

.Inn

oPr

c23.

662.

360

70.

020

.07

0.0

70

.01

0.06

0.14

0.10

0.12

0.03

0.26

0.40

0.90

14.P

14.

801.

321

70.

150.

070

.02

0.0

70

.05

0.23

0.23

0.18

0.19

0.08

0.21

0.13

0.18

15.P

24.

711.

311

70.

110.

050.

010.

030

.02

0.31

0.31

0.21

0.29

0.09

0.26

0.17

0.24

0.80

16.P

35.

151.

222

70.

070.

020

.08

0.06

0.02

0.07

0.18

0.19

0.26

0.21

0.28

0.16

0.21

0.67

0.55

17.P

44.

631.

311

70

.04

0.0

10.

090.

010

.03

0.20

0.23

0.25

0.31

0.0

70.

090.

060.

080.

560.

460.

4218

.P5

4.72

1.49

17

0.0

10.

040.

060.

070.

010.

240.

250.

310.

330.

010.

130.

010.

050.

520.

410.

420.

8019

.P6

4.65

1.39

17

0.0

60

.03

0.11

0.03

0.02

0.23

0.27

0.27

0.33

0.00

0.17

0.07

0.13

0.49

0.45

0.40

0.68

0.74

20.P

74.

641.

441

70.

010.

020.

090.

030.

030.

280.

320.

280.

320

.02

0.16

0.05

0.12

0.52

0.47

0.40

0.68

0.76

0.88

21.P

84.

721.

351

70

.04

0.0

20.

060.

030.

010.

210.

270.

270.

320

.08

0.04

0.04

0.07

0.53

0.48

0.43

0.72

0.74

0.85

0.83

22.P

95.

031.

321

70.

000

.03

0.07

0.0

10.

000.

290.

380.

360.

350

.01

0.13

0.15

0.16

0.61

0.52

0.53

0.76

0.75

0.77

0.81

0.86

Not

e:Co

rrel

atio

nso

f0.1

7o

rhi

gher

wer

esig

nific

anta

tp

Social Responsibility in New Ventures

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