What Drives Corporate Social Performance? International Evidence from Social, Environmental and Governance Scores
We investigate the institutional drivers of Corporate Social Performance (CSP) by focusing on its three fundamental components: social, environmental and governance performance. Using a large cross-section of firms from 42 countries over 7 years, we are able to explain 41, 46 and 63% of the variation in social performance, environmental performance, and corporate governance respectively, with observable firm, industry and institutional factors. More specifically, we hypothesize that country institutions have a profound influence on CSP. We find that political institutions, followed by legal and labor market institutions are the most important country determinants of social and environmental performance. In contrast, legal institutions, followed by political institutions are the most important country determinants of governance. Capital market institutions appear to be less important drivers of CSP. Our results provide insights on the demand and supply forces that determine CSP internationally. Assistant Professor of Strategic and International Management, London Business School, Regent’s Park, NW1 4SA, London, United Kingdom. Email: iioannou@london.edu, Ph: +44 20 7000 8748, Fx: +44 20 7000 7001. Assistant Professor of Business Administration, Harvard Business School, Soldiers’ Field Road, Morgan Hall 381, 02163 Boston, MA, USA. Email:gserafeim@hbs.edu, Ph: +1 617 495 6548, Fx: +1 617 496 7387. We thank ASSET4 (Thompson Reuters) for providing us with the data for this paper, and we are particularly grateful to Dr. Christopher Greenwald and Ms. Caroline Harrison at ASSET4 for their help and cooperation. All errors remain our own.