Corporate Social Responsibility, Customer Satisfaction, and Market Value

Author(s): Xueming Luo and C. B. Bhattacharya

Source: Journal of Marketing, Vol. 70, No. 4 (Oct., 2006), pp. 1-18
Published by: American Marketing Association
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 Xueming Luo & C.B. Bhattacharya

Social Responsibility,
Corporate
CustomerSatisfaction,
and Market
Value
Althoughprior research has addressed the influenceof corporate social responsibility(CSR) on perceived
customerresponses, itis notclear whetherCSR affectsmarketvalue of the firm.This studydevelops and tests a
conceptual framework, which predictsthat (1) customersatisfactionpartiallymediates the relationshipbetween
CSR and firmmarketvalue (i.e., Tobin'sq and stock return),(2) corporateabilities(innovativenesscapabilityand
productquality)moderate the financialreturnsto CSR, and (3) these moderated relationshipsare mediated by
customersatisfaction.Based on a large-scale secondary data set, the resultsshow supportforthis framework.
Notably,the authorsfindthatinfirmswithlow innovativenesscapability,CSR actuallyreduces customersatisfaction
levels and, throughthe lowered satisfaction,harms marketvalue. The uncovered mediated and asymmetrically
moderatedresultsofferimportant implicationsformarketingtheoryand practice.

In today's competitivemarketenvironment, corporate variousstakeholders, includingconsumers. A decade ago,

social responsibility(CSR) representsa high-profile Drumwright (1996) observed thatadvertisingwitha social
notionthathas strategicimportance to manycompanies. dimensionwas on therise. The trendseems to continue.
As manyas 90% of theFortune500 companiesnow have Many companies,includingthe likes of Targetand Wal-
explicitCSR initiatives(KotlerandLee 2004; Lichtenstein, Mart,have fundedlargenationalad campaignspromoting
Drumwright, and Bridgette2004). Accordingto a recent theirgood works.The October2005 issue ofInStylemaga-
specialreportin BusinessWeek (Berner2005, p. 72), large zine alone carriedmore than25 "cause" advertisements.
companiesdisclosedsubstantial investments in CSR initia- Indeed,consumersseem to be takingnotice;whereasin
tives(i.e.,Target'sdonationof$107.8 millionin CSR repre- 1993,only26% of people surveyed by Cone Communica-
sents3.6% of itspretaxprofits, GeneralMotors'sdonation tionscould namea companyas a strongcorporate citizen,
of $51.2 millionrepresents 2.7% of itspretaxprofits,Gen- by 2004, thepercentage surged to as highas 80% (Berner
eralMills's donationof$60.3 millionrepresents 3.2% ofits 2005).
pretaxprofits, Merck'sdonationof $921 millionrepresents Motivated, in part,bythismounting importance ofCSR
11.3% of its pretaxprofits,and HospitalCorporation of in practice,severalmarketing studieshavefoundthatsocial
America'sdonationof $926 millionrepresents 43.3% ofits responsibilityprograms havea significantinfluence on sev-
pretaxprofits).By dedicatingever-increasing amountsto eral customer-related outcomes (Bhattacharyaand Sen
cash donations, in-kindcontributions,cause marketing,and 2004). More specifically, on thebasis of lab experiments,
employeevolunteerism programs, companiesare actingon CSR is reported to affect,
eitherdirectlyor indirectly,con-
thepremisethatCSR is notmerelythe"rightthingto do" sumerproductresponses(Brown1998; Brownand Dacin
butalso "thesmartthingto do" (Smith2003,p. 52). 1997), customer-company identification(Sen and Bhat-
Importantly, along withincreasingmedia coverageof tacharya2001), customerdonationsto nonprofit organiza-
CSR issues,companiesthemselvesare also takingdirect tions(Lichtenstein, Drumwright, and Bridgette2004), and,
and visiblestepsto communicate theirCSR initiativesto more recently, customers'productattitude(Berens,Van
Riel,and Van Bruggen2005).
Although thisstreamofresearchhas contributed a great
XuemingLuo is AssistantProfessorofMarketing, Department ofMarket- deal of insight,thereis still a limitedunderstanding of
ing,UniversityofTexas at Arlington
(e-mail:luoxm@uta.edu).C.B. Bhat- whetherand how CSR affectsfinancialoutcomesof the
tacharyais Associate Professorof Marketing,Department of Marketing,
School of Management,Boston University firm, suchas itsmarket value.Yetitis importantto evaluate
(e-mail:cb@bu.edu). The
authors thankBiao He, KhurramAnsari,ThitikarnRasrivisuth,and CSR's impacton marketvalue (i.e., stock-basedfirmper-
XiaochuYu fortheirassistance withdata collectionand analysis.They formance) because a firm'sfinancialhealthis theultimate
also thankthe anonymousJMreviewers, GuidoBerens,DonaldLichten- testforthe success or failureof any strategicinitiative.
stein,Fernado Jaramilo, and seminarparticipants at the University
of Moreover,priorlaboratory studiesand anecdotalexamples
Texas at Arlington
fortheirconstructive
and insightful
commentson previ- are yet to be complemented witha large-scaleanalysis
ous versionsofthisarticle.
usingsecondarydata. Indeed,Brownand Dacin (1997, p.
Toreadorcontribute
toreader
andauthor onthisarticle,
visit 80) urgently call forresearchon "how societallyoriented
dialogue
htfp://www
marketingpower.
com/jmblog. activities
mightbringaboutpositiveoutcomesforthefirm."
Echoing this, Berens,Van Riel, and Van Bruggen(2005)
0 2006,American Association
Marketing Journal of Marketing
ISSN:0022-2429 1547-7185
(print), (electronic) 1 Vol.70 (October
2006),1-18

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energetically call forresearchefforts thatdirectly linkCSR previouslyneglected"dark side" of CSR. That is, CSR
to stockmarket performance. actuallyreducescustomersatisfactionlevelsin firmswith
Our researchrespondsto thiscall by investigating the low innovativenesscapabilityand, throughthis negative
linkage between CSR and firmmarket value with a longitu- impact,harms firm market value.The uncoveredmediated
dinal,archivaldataset.In keepingwithcontingent linkages and asymmetrically moderatedresultssuggest a more
between CSR and consumer responses that prior nuancedunderstanding of thefinancialreturnsto CSR for
researchersarticulated(see, e.g., Bhattacharya and Sen andmarketing
bothpractitioners researchers.
2004), we do not a
predict simple, unconditional relation-
ship between CSR and market value. This is because firms
are not the same in executing,supporting, and exploiting Conceptual Frameworkand
CSR initiatives in themarketplace (Brown1998; Sen and Hypotheses
Bhattacharya 2001). Specifically, companiesmaygenerate
different (i.e.,positive,nonsignificant, andnegative)market CSR and MarketValue
returns fromCSR underdifferent conditions. For example, Broadlydefined,CSR is a company'sactivitiesand status
Starbucks'ssuperiorbrandequityand its successfulCSR relatedto its perceivedsocietalor stakeholder obligations
initiativeswiththecharity agencyCARE aredue,at leastin (Brown and Dacin 1997; Sen and Bhattacharya2001;
part,to its superior product quality,innovative skills,and Varadarajan andMenon1988).Althoughstudiesin strategy
abilitytoobtainandsustaincustomer satisfactionovertime. and financehave exploredthe relationship betweenCSR
In contrast, many companies find that CSR results in nega- actionsand firmperformance, empiricalevidenceto date
tivefinancialreturns becauseof theaddedcostsof making has been ratherconflicting(for a review,see Orlitzky,
extensivecharitable contributions andthediverted attention Schmidt,and Rynes 2003; Pava and Krausz 1996). For
fromimproving productqualitythatwould have allowed example,the returnsto CSR are foundto be positivein
themto bettersatisfycustomerneedsand wants(McGuire, some studies(e.g., Fombrunand Shanley1990; Soloman
Sundgren,and Schneeweis 1988; Sen and Bhattacharya and Hansen 1985) but negativein others(e.g., Aupperle,
2001). Thus,theresearchquestionsin thisstudyare as fol- Carroll, and Hatfield 1985; McGuire, Sundgren,and
lows: (1) Underwhatconditions do CSR initiatives resultin Schneeweis1988). Thus, Margolisand Walsh (2003, p.
positivefinancialperformance? and (2) Does customersat- 277) conclude thatthe relationshipsbetweenCSR and
isfactionmatterin therelationship betweenCSR and firm financialperformance aredecisively"mixed."
performance? Thereareat leasttwoexplanations fortheseconflicting
To addressthesequestions,we developand testa con- findings.First,existingstudieshavelargelyrelatedCSR to
ceptualmodel thatproposesthatCSR initiativesenable backward-looking firmprofitability(i.e., accounting-based
firmsto builda base of satisfiedcustomers, whichin turn return on investment) butnotto forward-looking firmmar-
contributes positively to marketvalue.Specifically, we pre- ketvalue (i.e., stock-based Tobin'sq). Theoretically, how-
dictthatcustomersatisfaction partiallymediatestherela- ever,marketvalue is different from(and perhapsmore
tionshipbetweenCSR and marketvalue.Althoughextant important than)returnon investment because "accounting
marketing literature has addressedthedirectimpactof cus- measuresare retrospective and examinehistoricalperfor-
tomersatisfaction on firmshareholder value (e.g., Ander- mance.In contrast, the marketvalue of firmshingeson
and
son,Fornell, Mazvancheryl 2004; Fornell et al. 2006), growthprospects and sustainabilityof profits,or the
themediating role of customersatisfaction in thefinancial expectedperformance the future"(Rust,Lemon, and
in
contribution of CSR has been ignored.In this study,we Zeithaml2004, p. 79). Second,theequivocallinkbetween
explicitly theorize this role and arguethatbuildingcus- CSR and firmperformance maybe due, in part,to extant
tomersatisfaction represents partof theunderlying mecha- strategy and finance literaturehavinglargelyomittedthe
nism throughwhich the financialpromisesof CSR are underlying processesor contingency conditionsthatmay
capitalized. explaintherangeof observedrelationships (Sen and Bhat-
Furthermore, we exploretheboundary conditions under tacharya 2001).
whichfirmsmayderivepositiveor negativemarketvalue We preciselyexaminethese researchissues in this
fromCSR. Drawingon varioustheoretical bases,we argue study.In particular, as we showin Figure1, ourframework
thatfirmsthathavebetterinside-out corporate abilities(i.e., proposesthattherelationship betweenCSR and firmmar-
productqualityand innovativeness) to beginwithtendto ketvalueis betterunderstood bythemediating linkof cus-
generatemoremarket valuefromoutside-in strategic initia- tomersatisfaction. In recenttimes,scholars(e.g.,Anderson,
tives(i.e., CSR programs).Conversely, firmsthatexhibit Fornell,and Mazvancheryl 2004; Fornellet al. 2006) have
poorercorporate abilitiesmayfindthatCSR actuallyharms demonstrated the positiverelationship betweencustomer
customersatisfaction and,becauseof theloweredsatisfac- satisfactionand marketvalue. We build on thisliterature
tion,decreasesstockperformance. and institutional theoryto proposethatCSR is a driverof
Based on multiplesecondary datasetsthatcompriserat- customersatisfaction and thattheCSR-firmmarketvalue
ings of large companies, the results show supportforthe linkageexists(at leastpartially)becauseof theunderlying
CSR -3 customersatisfaction -> firmmarketvalue causal processthrough customer In addition,drawing
satisfaction.
linkage.In addition,we findthata propercombination of on workin thearea of corporateidentity and associations
externalCSR initiatives and internal corporate abilitiescan (e.g.,Brown and Dacin we
1997), posit that a firm'scorpo-
lead to synergistic returns. However,thedata also reveala rateabilities(i.e., productqualityand innovativeness capa-

21 Journal
ofMarketing,
October2006

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 FIGURE 1
Conceptual Framework

CSR x
Corporate
Ability
H4
(CorporateAbility
.Productquality
.Innovativeness H3
capability CS

Market
Value
Customer ,Tobin'sq
CSR Satisfaction 'Stock return
H1
(CS)

H2
CS

Notes: Bolded paths are hypothesizedrelationships.Unbolded paths have been studied previously(e.g., Anderson,Fornell,and Mazvancheryl
2004; Anderson,Fornell,and Rust 1997; Fornellet al. 2006; Griffin and Hauser 1996; Mithas,Krishnan,and Fornell2005b). Dashed
paths indicatethatthe depicted relationshipsare partiallymediated by customersatisfaction.

moderate
bility) therelationship between CSRandmarket potential members ofvarious stakeholder groups thatcom-
value.Finally, weexpect thatcustomer satisfaction medi- panies needtoconsider. Viewed inthisway,suchgeneral-
ates,atleastpartially,
these moderated relationships. izedcustomers arelikely tobe moresatisfied byproducts
andservices that socially responsible firms (versus
socially
CSR and Customer Satisfaction offer.
irresponsible
counterparts)
Customer satisfactionis defined as an overall evaluation Second, a strong record ofCSRcreates a favorablecon-
basedonthecustomer's totalpurchase andconsumption textthatpositively boostsconsumers' evaluations ofand
experience witha goodor service overtime(Anderson, attitude toward thefirm (Brown andDacin1997;Giirhan-
and
Fornell, Mazvancheryl 2004;Fornell 1992). In themar- Canliand Batra2004; Sen and Bhattacharya 2001).Specifi-
keting customer
literature, satisfaction
has been recognized cally, recent works on customer-company identification
as an important of
part corporate strategy (Fornellet al. (Bhattacharya and Sen 2003, 2004) suggest CSRinitia-
that
2006) and a key driverof firmlong-term profitabilityand tivesconstitutea key element ofcorporate that
identity can
market value(Gruca andRego2005). induce customers toidentify (i.e.,develop a senseofcon-
Whyshould a firm'sCSRinitiatives leadtogreater cus- nection)with the company.Indeed,Lichtenstein,
tomer satisfaction?
Atleastthree research streams pointto Drumwright, andBridgette (2004,p. 17)notethat"a way
sucha link:First,both institutional
theory (Scott1987) and thatCSR initiatives
create benefits forcompanies appears to
stakeholder theory (Maignan, Ferrell,and Ferrell2005) be byincreasing consumers' identification
with thecorpora-
suggest thata company's actionsappeal tothemultidimen-tion... [and]support forthecompany." Notsurprisingly,
sionalityoftheconsumer asnotonly aneconomic beingbut identified customers aremorelikely tobe satisfiedwitha
alsoa member ofa family, and
community,country (Han- firm'sofferings Rao,
(e.g.,Bhattacharya, Glynn and 1995;
delman andArnold 1999).Building on this,Dauband Bhattacharya andSen2003).
Ergenzinger (2005)propose theterm"generalized cus- Thethird literaturestream that enablesustorelate CSR
tomer" todenote people who arenot only customers who to customer satisfaction examines the antecedentsof cus-
careabouttheconsumption experiencebut alsoactualor tomer satisfaction.For example, perceived valueis a key

Customer
Social Responsibility,
Corporate and Market
Satisfaction, ValueI 3

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antecedent thathas beenempirically showntopromotecus- firm'scustomer levelat leastpartially
satisfaction medi-
tomersatisfaction (Fornellet al. 1996; Mithas,Krishnan, atesthisinfluence
ofCSR onmarket value.
andFornell2005b).In ourcontext, all else beingequal,cus-
tomerslikely derivebetterperceivedvalue and, conse- The Moderating Role of Corporate Abilities
quently, highersatisfactionfroma productthatis madebya
In thissection,we arguethattherelationship betweenCSR
socially responsiblecompany(i.e., added value through and firmmarketvalue maynotbe universally positivebut
good social causes). Furthermore, engagingin CSR may rather on several conditions.Thatis, a
allowfirms tounderstandtheirgeneralized customersbetter contingent boundary
or
positive negativerelationship be
may observed,depend-
and thusimprovetheircustomer-specific knowledge(Sen
and Bhattacharya2001). Because improvingcustomer ingon thelevelsofcorporate abilities.In general,corporate
abilitiesreferto variouselementsof a firm'sexpertiseand
knowledgerepresentsanotherantecedentthathas been such as theabilityto improvethequalityof
foundto enhancecustomer satisfaction et al. competency,
(Jayachandran and the abilityto generatenew
and Fornell we believethat existingproducts/services
2005; Mithas,Krishnan, 2005a),
CSR initiatives customer satisfaction. products/services innovatively (GatignonandXuereb1997;
mayhelppromote Rust, Moorman, and Dickson 2002; Zeithaml 2000).
Hl: Allelsebeingequal,firmsthatareviewedmorefavorably Accordingto Brownand Dacin (1997), a company'sCSR
for theirCSR initiativesenjoy greatercustomer and corporateabilitiesbothinfluencecustomers'percep-
satisfaction. tionsof thecompany'sproducts.
We expectthatfirmswithlow levelsof corporate abili-
The Mediating Role of Customer Satisfaction ties(i.e., low levelsofinnovativeness capabilitiesandprod-
The existingmarketing literature
showsaccumulating evi- uct quality)generatenegativemarketvalue fromCSR for
dencefortheinfluence ofcustomer satisfactionon firmmar- severalreasons.On thebasisofinstitutional theory,Handel-
ketvalue.For example,firmswithsatisfied customers tend man and Arnold(1999) contendthatcompaniesshould
to enjoygreatercustomerloyalty(e.g., Boltonand Drew engagein CSR withgood causes (forthesocial aspectof
1991;Oliver1980),positivewordofmouth(Szymanskiand legitimation) and,at thesametime,providea good product
Henard2001), and customer'swillingness to pay premium (for pragmaticaspectof legitimation).
the Thus,it is likely
thatCSR initiatives failto generatea favorable impactifthe
prices(Homburg, Koschate, and Hoyer2005), all of which
can increasea firm'smarketvalue. Indeed,severalstudies firmis perceivedas less innovativeand as offering poor-
findthatfirmswithhigherlevels of customersatisfaction qualityproducts(i.e., due to a lack of pragmatic legitima-
are able to achievehigherlevelsof cash flows(e.g., Gruca tion; see DiMaggio and Powell 1983). Indeed, Sen and
and Rego 2005; Fornell1992; Mittalet al. 2005) and less Bhattacharya (2001) show thatCSR initiatives may even
offuture cash flows,thusleadingto superior mar- backfirewithreducedpurchaseintentand negativepercep-
volatility
tionsif consumers believethatCSR investments are at the
ketvalue(e.g.,Anderson, Fornell,andMazvancheryl 2004;
Fornellet al. 2006; Srivastava,Shervani, andFahey1998). expenseof developingcorporateabilities,such as product
In linkingthisevidencefortheinfluenceof customer qualityandinnovativeness (i.e.,investments represent "mis-
satisfaction on firmmarketvalue withourfirsthypothesis guidedpriorities" on thepartof thefirmwithlow levelsof
on theinfluence ofCSR on satisfaction, a mediating roleof corporateabilities).More important, consumersmaymake
customersatisfactionin the CSR-performancelinkage negative and detrimental attributions regardinga firm's
motivesifa low-innovativeness or low-product-quality firm
mightlogicallybe expected.Thatis, CSR affects customer
in social This would
satisfaction, which in turn affects market value. In other engages responsibility. ultimately
customer satisfaction the mediational resultin an unattractive corporate identityand,thus,nega-
words, represents
pathwaythroughwhichCSR actionsaffectfirmmarket
tivemarket returns byvirtueofnegativewordofmouthand
value. detrimental customer complaints (Brown1998;Varadarajan
routes"by which andMenon1988).1
However,theremaybe "noncustomer
CSR affectsmarketvalue. For example,both textbooks Conversely, we predictthatfirmswithhighlevels of
(e.g.,KotlerandLee 2004; Pava andKrausz1996) and aca- corporateabilitiesgeneratepositivemarketvalue from
demic articles(e.g., Godfrey2005; Margolisand Walsh CSR. Such firmstendto possesbettercorporate imageand
more attractive identitieswithwhichconsumerswantto
2003) havepointedto theimpactofCSR on multiplestake-
holders,such as employeesand investorsas well as con-
sumers.In particular, positive"moralcapital"as a resultof
CSR (Godfrey2005, p. 777) could directlyaffectmarket
In lourfocushereis onthemoderating roleofcorporate in
ability
value by improving employeemoraleand productivity. theCSR-performance linkratherthanon thedirect relationship
addition,CSR createspublicgoodwill(Houstonand John- between CSR andcorporate Thatis,wedo notinvestigate
ability.
son 2000; McGuire, Sundgren,and Schneeweis 1988), whether CSR directly oris related
affects and
to innovativeness
which providesan "insurance-like" protectionto share- product (i.e.,
quality corporate ability-related giventhe
constructs)
holder wealth. As a consequence, puttingthe pieces literature.
conflicting Ontheonehand,Brown andDacin(1997,p.
together, we predicta partiallymediating role of customer 68, emphasis added)contend that"CSR associations are often
satisfactionon theimpactofCSR on market value. unrelatedto thecompany's in producing
abilities goodsandser-
vices."Ontheother hand,itis possiblethata firm's is
innovation
H2:Allelsebeingequal,firms thatareviewedmorefavorably CSR oriented (e.g.,environmentallyresponsible and
packaging),
fortheirCSR initiatives
enjoyhigher marketvalue,anda CSR initiatives
mayaffect product-quality
perceptions.

ofMarketing,
4I Journal October2006

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identify(Bhattacharya and Sen 2003). Whencoupledwith tiveMedia Reporting(CMR), and CenterforResearchin
high corporateabilities,a firm'sCSR actionsare more SecurityPrices(CRSP).
likelyto generatefavorableattributions andconsumer iden-
tification.This would ultimatelypromoteperformance- Measuring CSR
enhancingbehaviors,such as customerloyalty(Bhat- One approachto measuringmarketperceptions of firms'
tacharyaand Sen 2004). Indeed,ifa firmcan accommodate CSR initiatives is torelyon theamountofCSR investments
customers and otherstakeholders and meetdifferentsetsof disclosedin firms'annualreports to shareholders. However,
norms(e.g., pragmatic and social norms)by not merely thereare manyimportant doubtsaboutthevalidityof the
executing CSR initiativesbutalso developingstrongcorpo- announcedCSR investments, despitethe seemingattrac-
rateabilitiesto supportand exploittheseCSR actions,it is tivenessof thisapproach.For example,thereis a lack of
in a betterpositionto win thesocial contract,institutional consensuson whatshouldbe included(orexcluded)inCSR
allegiance, moral legitimacy, and consumers' supportfor investments (Margolisand Walsh2003; Orlitzky, Schmidt,
the organization (cf. Handelman and Arnold 1999, p. 34; and Rynes2003; Tsoutsoura2004). Few companieshave
Scott1987).Takentogether, thesebeneficialeffects
suggest theirannouncedCSR investments audited or validated
a positivemarket return to CSR forfirms withhighlevelsof externally bythirdparties.Thus,somefirms mayoverreport
corporateabilities.Therefore, we proposean asymmetric CSR investments forimpression management (i.e.,exagger-
moderating effect of corporateabilitieson theassociation ating theirgiving). Other firmsmay underreport CSR
betweenCSR andfirmmarket value. investments becausetheymayregardCSR investments only
H3:Corporate abilities(i.e.,productquality and innovative- as donated cash or in-kindproducts and services (excluding
nesscapability) moderate therelationship between CSR investments thatbenefittheenvironment and theiremploy-
andmarket value.The relationship willbe negativefor ees). Furthermore, althoughsome externalsources(e.g.,
firms withlowcorporate butwillbe positive
abilities for 100 best corporate citizens by Business Ethics,
firms withhighcorporate abilities. Social Responsibility Initiativereports)may
csrwire.com,
trackcompanies'CSR investments objectively, the nature
The Mediating Role of Customer Satisfaction in and amountof CSR investments for the same firmcan
the Moderated Relationships changedramatically fromone sourceto another(Berner
2005; Fombrum and Shanley1990; Margolisand Walsh
Finally,as we haveargued,partofthemechanism bywhich 2003).
CSR actionsinfluencea firm'smarketvalue is customer
Therefore,we turnto subjectivemeasuresof CSR.
satisfaction.Thus,it is conceivablethatthepositiveimpact
of CSR on firmswithhigh levels of corporateabilities Althoughsome studiesuse small-scalesurveydata witha
limitedsetof firms(e.g., Christmann 2000), priorresearch
enhancesthe level of customersatisfaction, whichthen
suggests the use of a more comprehensive, large-scalesur-
leads to enhancedmarketvalue (Anderson,Fornell,and set from FAMA to measure CSR
vey data available
Mazvancheryl 2004; BrownandDacin 1997;Sen andBhat-
(McGuire,Sundgren, and Schneeweis 1988). More specifi-
tacharya 2001). in the United States' most admiredcorpora-
On thecontrary, forfirmsthatarelow in corporate abil- cally, ranking
tionseach year,FAMA polls morethan10,000 financial
ity(i.e., theyare neither innovative norcompetent in prod-
uctquality),CSR actionsmaynotbe able to generatemuch analysts,seniorexecutives,and Wall Streetinvestors from
morethan580 largecompanies(see Fortune2005,p. 68).
institutional legitimacy, customer-company identification, For each firm-year FAMA collectsratings
observation,
or customer satisfaction(Scott1987). As a result,CSR ini- of CSR thathave been made on an intervalscale ranging
tiativesmayrelatelittleto financial resultsandmarket value
from0 to 10,with10 as thehighest;theratingsrepresent a
(e.g.,MargolisandWalsh2003; Mithas,Krishnan, andFor- in a given
nell 2005b) in firmswithlow levels of corporateabilities. comparison among major competing companies
industry.Studiesin bothmarketing and strategy (e.g.,Fom-
Thus:
brum and Shanley 1990; Houston and Johnson2000;
H4:A firm's customer satisfaction mediates McGuire,Sundgren,
at leastpartially and Schneeweis1988) have reported
themoderated relationship among CSR, corporateabili- evidenceof reliability and validityof thisdata source.In
ties(i.e.,productqualityandinnovativeness capability), particular,McGuire,Schneeweis,and Branch (1990, p.
andmarket value.
170) note,"Fortunereputation is one of themostcompre-
hensiveand widelycirculatedsurveysof attributes avail-
able. Boththequalityand numberof respondents are com-
Data and Variable Construction parableor superiorto the `expertpanels' usuallygathered
In thissection,we describethesecondary datathatwe col- forsuchpurposes." HoustonandJohnson (2000,p. 12) also
lectedto testthehypotheses. We also presenttheconstruc- acknowledge it as the "bestsecondary" source.
data
tionof thevariables,suchas CSR, corporateabilities,cus- Priorresearchhas shownthatthereis a reverse-causality
tomersatisfaction, and marketvalue.In Table 1, we report concernbetweenCSR and financialperformance (e.g.,
the variables,theirdefinitions, and data sources.We col- McGuire, Sundgren,and Schneeweis 1988). That is, a
lecteddata forthepubliclytradedFortune500 companies firm'sCSR affects itsfutureperformance, and a firm'shis-
frommultiplearchivalsources: COMPUSTAT, Fortune tory of financial performance contributes to itscurrent CSR
America's Most Admired Corporations(FAMA), the involvement. We accommodatethisconcernby usingthe
AmericanCustomerSatisfaction Index (ACSI), Competi- approachthatRobertsand Dowling(2002) recommend. In

Corporate Customer
SocialResponsibility, andMarket
Satisfaction, !5
Value

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 TABLE 1
Variables and Data Sources

Variables Measures
Definitions; SecondaryData Sources Data Types
CSR Broadlydefinedas a company'sactivities FAMA from0 to 10
Interval
and statusrelatedto itsperceivedsocietal
orstakeholder latentvariable
obligations;
indicatedbyCSR scores in2001
(publishedin2002),2002 (publishedin
2003),and 2003 (publishedin2004).
Customer ofthe
Definedas an overallevaluation ACSI from0 to 100
Interval
satisfaction postconsumptionexperienceofproducts or
servicesinthemindsofcustomers; latent
bycustomer
variableindicated satisfaction
scores in2002,2003,and 2004.

Productquality Definedas theminimum conditionorthe FAMA Interval 0 to 10

from
threshold ofproduct thata firm
attributes
mustmeetwhenoffering itsproducts or
serviceincompetitivemarkets;latent
variableindicated
byqualityof
scores in2001,2002,
products/services
and 2003.

Innovativeness Definedas a firm's to applyitsinternal

ability FAMA from0 to 10
Interval
capability knowledge stockto producenew
technology, newproducts/services,and
othernewfronts; latentvariableindicated
byqualityofproducts/servicesscores in
2001, 2002, and 2003.

Tobin'sq Stockprice-basedmeasureoffirm market CRSP Ratio

value;observedvariablebased on the COMPUSTAT
averageofTobin'sq in2002,2003,and
2004.

Stockreturn Stockprice-basedmeasureoffirm market CRSP Ratio

value;observedvariablebased on the COMPUSTAT
averageofstockreturnin2002,2003,and
2004.

weregress
particular, CSRscores firm
against financial
per- selling streams
literature
andpsychology (Bluedorn1982;
formance(returnonassets [ROA]) inthe four
prior years and
Boles,Johnston,Hair1997; etal. 1990;Nete-
Johnston
andsavetheresidualofthisregression measure
asthefinal meyer, andPullig
Maxham, 2005).
ofCSR.Because isindependent
thisresidual from financial
performance,thereverse-causality biasis no longera MeasuringCorporateAbilities
concern. Wedo notviewcorporate abilities
simply as a unidimen-
Followingthework ofChoandPucik(2005),weused sionalconstruct. weconsider
Instead, twospecific corpo-
ofCSRforeachfirm
theratings in2001,2002,and2003 rateabilities:
productqualityandinnovativeness capability
(butpublishedin2002, 2003, and 2004,duetoa one-year (GatignonandXuereb 1997;Rust, Moorman, andDickson
in
lag print) as threeseparateindicatorsofthelatentcon- 2002;Zeithaml2000).Inourview, both and
innovativeness
ofCSR.2Thisapproach
struct ofusing measurement items productqualitycanrepresent thedimensions ofcorporate
withdifferenttimeframes is alsowidely appliedin the thatBrown
ability andDacin(1997)propose. Although
Li
(e.g.,
strategy and Atuahene-Gima 2001) andpersonal- productquality to a firm's
refers abilityto "exploit"the
ofproducts
capabilities already inthemarketplace (Choand
Pucik2005;March1991),innovativeness represents a
firm's to"explore"
ability newmarket in
possibilities terms
2Choand Pucik(2005) findstrongsupport and
(construct
criterion-related forusingmultiyear
validity) from
ratings Fortune ofdeveloping newproducts (KimandMauborgne 1997;
magazine oftheunderlying
as indicators variable.
latent McGuire, KleinschmidtandCooper1991).In addition, commitment
Sundgren,andSchneeweis CSR
(1988)also employsingle-year tothequalityofexistingproductsis essential
forkeeping a
from
ratings Fortuneas themeasureofCSR. firm'scurrentcustomers happy, whereas innovation is

October2006
ofMarketing,
6 /Journal

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essentialforreachingnew customerbases and cateringto acrossfirmsand years(Fornellet al. 1996; Fornellet al.
ever-changing customer needs. 2006; Mithas,Krishnan, and Fornell2005b).A comprehen-
Formally, productqualitycan be definedas themini- of thissatisfaction
sive testof the validityand reliability
mumconditionor thethreshold of productattributes thata measurecan be foundin theworkofFornellandcolleagues
firmmust meet when offeringits products/services in (1996). Parallel to CSR, innovativenesscapability,and
competitive markets(Rust,Moorman, and Dickson 2002; productquality,we treatcustomersatisfaction as a latent
Vargoand Lusch 2004; Zeithaml,Parasuraman, and Berry variableand measureit using its ACSI ratingsin 2002,
1990). Priorstudieshaveestablished thata firm'sabilityto 2003,and 2004 as threeseparateindicators.
a
provide superiorproduct/service qualityis criticalforits
long-term survival and success (e.g., Buzzell, Gale, and Measuring Market Value
Sultan1975; Mittalet al. 2005; Rust,Moorman,and Dick- We havetwoseparatemeasuresof marketvalue at thefirm
son 2002). level acrossyears:Tobin'sq and stockreturn. We follow
In a similarfashionto CSR, we measureproductquality studies(Lee and Grewal 2004; Rao,
priormarketing Agar-
by FAMA ratingsin 2001, 2002, and 2003 (publishedin wal, and Dahlhoff2004) to calculateTobin's q foreach
2002, 2003, and 2004) as theunderlying indicators. Again, firm-yearobservation.3In addition,followingJacobsonand
because of thereversecausalitybetweenfinancialperfor-
colleagues(i.e.,AakerandJacobson1994,2001; Mizikand
mance and FAMA ratings,we controlfor this bias and Jacobson2003), we derivethe measureof stock return
obtainclean measuresforproductqualityand innovative-
usingtheCOMPUSTAT and CRSP databases.4Ratherthan
nesscapability byemploying thesameresidualapproachas
usinga simpleyear-endstockprice,we use a morecon-
in thecase ofCSR (e.g.,RobertsandDowling2002). servativemeasureof stockprice-thatis, theaverageofthe
Innovativeness capabilityis a firm'sabilityto applyits end of thefourquartersof stockprices-whencalculating
internal knowledgestockto producenew technology, new Tobin'sq and stockreturn (Lee and Grewal2004). We then
products/services, and othernew fronts(Drucker1993; use thederivedthree-year average(2002, 2003, and 2004)
Griffin and Hauser 1996). Accordingto exploration learn- ofTobin'sq andstockreturn as observedmeasuresformar-
ingtheory(March1991),innovation is also criticalforthe ket value. Comparedwith marketvalue, the predicting
survivalandsuccessoforganizations becausedynamicmar- variablesof CSR, innovativeness capability,and product
ketsconstantly shakeout theplayersthatlack capabilities
qualitywereall laggedby one yearto be morepreciseon
to explorenewmarketopportunities (Gatignonand Xuereb thespecificdirectionofcausalityandtoreducethepossibil-
1997; Schumpeter1934). Similarto productquality,we ity of endogeneity bias (Murthi,Srinivasan,and Kalya-
measurethelatentvariableof a firm'sinnovativeness capa- naram1996; Rust,Moorman,an Dickson2002).
bilityby usingitsFortuneratingsin 2001, 2002, and 2003
fromFAMA (publishedin 2002, 2003, and 2004) as three Measuring Control Variables
separateindicators underlyingthisconstruct. Priorresearch
We obtainedthedataforcontrolvariablessuchas research-
has employedthisdatasourceto measurecompanies'inno-
and-development (R&D) intensity, firmsize, competition
vativeness capability(Cho andPucik2005). and ROA from and we obtained
intensity, COMPUSTAT,
thedataforadvertising intensityfrom CMR. More specifi-
Measuring Customer Satisfaction R&D is the ratioof R&D
cally, intensity spendingto total
We used theACSI databaseto measurecustomersatisfac- assets.We controlfortheinfluenceof R&D expenditures
tion.In themarketing theACSI has been shown
literature, on performance because a firm'sR&D intensity enhances
to be a reliablesourceof measuring customersatisfaction. innovationactivitiesand investors' evaluationsof thefirm
Severalstudiesemploythisdatabaseto assess overallcus- (Chauvin and Hirschey 1993; Gruca and Rego 2005;
tomer satisfactionof total purchase and consumption McGuire,Sundgren, and Schneeweis1988).
experienceat the firmlevel (e.g., Anderson,Fornell,and Advertising
intensity is theratioofreported advertising
Mazvancheryl 2004; Fornellet al. 2006; Grucaand Rego spendingto totalassets.Because COMPUSTAT has many
2005; Mithas,Krishnan,and Fornell2005b; Mittalet al. missingdatapointsforfirmadvertising expenditure,we use
2005). The NationalQualityResearchCenterat theUniver-
sityof Michigandevelopedand maintainstheACSI data
set.It has datafornearly200 Fortunelargecompaniesthat
span all major economicsectorsand constitute approxi- 3Rao,Agarwal, andDahlhoff a detailed
(2004,p. 130)provide
mately43% of the U.S. economy.To obtainACSI data, functionon howto deriveTobin'sq. Thatis, q = (sharepricex
more than 50,000 householdconsumers(actual product number ofcommon stockoutstanding + liquidatingvalueofthe
users)of theselargefirmsare polledon a quarterly basis. firm's stock+ short-term
preferred - short-term
liabilities assets+
Each valid respondenthas passed screeningquestions bookvalueoflong-term debt)/bookvalueoftotalassets.
relatedto predefined purchaseand consumption periods. 4Inparticular,
AakerandJacobson (2001,p. 489)andMizikand
TheACSI uses an interval scalerangingfrom0 to 100,with Jacobson (2003,p. 71) suggesta detailedfunctiononhowtocal-
culatestockreturn. Thatis, stockreturn = (currentyear'sshare
100 as thehighestlevelofcustomer satisfaction. - previ-
Based on multi-item, pricex numberofcommon stockoutstanding + dividends
multiconstruct theACSI
criteria, ous year'ssharepricex number ofcommon stockoutstanding)/
is a reliabledatasourcebecauseitemploysthesamesurvey (previousyear's share price x numberof commonstock
questionnaire, randomsampling,and estimation modeling outstanding).

Cornorate
SocialResnonsibility.
Customer andMarket
Satisfaction, Value
17

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the CMR database for advertising-spending data (Rao, words, neitherthe low-innovativenessnor the high-
Agarwal,and Dahlhoff2004). We controlfortheinfluence innovativeness
firmsare dominatedby particular
industry
ofadvertising expenditures on performance becauseintense types.
advertisingpromotes customer awareness, brandequity,and
sales revenues(e.g., Josephand Richardson2002; Morgan Merged Final Data Set
andRego 2006). We mergeddata fromthesedifferent archivalsourcesand
Firmsize is thelog ofnumberofemployees. We control obtainedunbalancedpaneltime-series, cross-sectional data
fortheinfluence of firmsize becauselargefirmsmayhave consisting of 452 firm-year observations across 113 firms
more resourcesand thus enjoy economiesof scale, but forthe 2001-2004 periods.However,one year'sdata are
smallfirms mayhavehigherstrategic flexibilitywhenseek- lostbecausewe employedthelaggingprocess(2001-2003
ing entrepreneurial rents (Dutta,Narasimhan,and Rajiv forCSR, productquality,and innovativeness; 2002-2004
1999;Rao, Agarwal, and Dahihoff 2004). forcustomersatisfaction, Tobin's q, and stockreturn)to
Strategicfocusis thenumberof businesssegmentsin reducetheendogeneity bias and reverse-causality concerns
which the firmoperates (Rao, Agarwal, and Dahlhoff describedpreviously. Thus,we wereable to use 339 data
2004). This variableis available directlyfromthe menu pointsforhypotheses testing.Thismergeddatasetincludes
choice at the Compact Disclosure (CD-ROM), which individual firms in various industries,ranging from
definesitas "thenumberofuniquebusinesssegments ofan durables(e.g., automobiles, householdappliances,personal
individualcompany." We controlforthisinfluence because computers), to nondurables (e.g., cigarettes;athleticshoes;
of possiblediversification effects.Thatis, morediversified services,suchas airlines, hotels,andutilities), toretail(e.g.,
firmsmay have a fasterasset turnover rate and exhibit department stores,discountstores,supermarkets), among
economiesof scope.However,highlydiversified firmsmay others.Although FAMA has ratingsofCSR, innovativeness
lack focus in the highlysegmented, competitive market- capability, and productqualityforapproximately 580 firms
place and thus experiencenegative returns (Fombrum and (Cho andPucik2005; Fortune2005) andACSI has dataon
Shanley 1990; Gruca and Rego 2005). approximately 190 firms/brands (Fornellet al. 1996; For-
We measurecompetition intensity byusingtheHerfind- nell et al. 2006; Grucaand Rego 2005; Morganand Rego
ahl concentration index,derivedfromCOMPUSTAT.Fol- 2006), we werenotable to obtaina largersampleof firms
lowingpriorwork(Gruca and Rego 2005; Mithas,Krish- in the mergedfinaldata set. This is because manyfirms
nan, and Fornell2005a), we calculatethis concentration includedin Fortune'ssource are not represented in the
indexat theprimaryfour-digit industry level of Standard ACSI sourceand becausethesame firmmayhave several
IndustrialClassification codes (whichhas beenreplacedby brandsin theACSI (Anderson, Fornell,and Mazvancheryl
the NorthAmericanIndustryClassificationSystem)for 2004). We also triedto search otherrelevantsecondary
each firm-year observation. We use thiscovariateto control sources (Standard& Poor's industryreports,company
forimpactofindustry competition level(Rao,Agarwal,and annualreports, CompactDisclosure,andMoody'sreport)to
Dahlhoff2004). cross-validate our finaldata set spanningtheperiodfrom
Finally,we controlfortheinfluence ofROA in predict- 2001 to 2004.
ing stock returnand Tobin's q (Chauvin and Hirschey Note thatCOMPUSTAT does not have completedata
1993). In particular, we measureROA as theratioof net pointsforall variables.For example,because COMPUS-
income afterextraordinary itemsto book value of total TATdoes notrequirecompaniesto report theirR&D invest-
assets,derived from COMPUSTAT. We used theaverageof ments(volunteered responsesonly;see JosephandRichard-
the 2002, 2003, and 2004 data pointsas the measureof son2002),we foundthatmorethan40% ofobservations for
ROA. We includeROA as a covariatevariablebecause of thecontrolvariableof R&D are missingacrosstheyears.
the impactof financialinformation on the stockmarket Beforetestingthehypotheses, we controlled forthecovari-
(ChauvinandHirschey1993;EricksonandJacobson1992). atesusingthesameapproachappliedin priorstudies(e.g.,
Table 2 presentsthesummary statisticsforall variablesin Ahearne,Bhattacharya, and Gruen2005; Pan, Ratchford,
thisstudy. and Shankar2002). In particular, we rana linearregression
Despitehavingthesestringent controls,in lightof our withall controlvariables(firm-level and industry-level) as
moderation hypotheses, a lingeringissue is whetherthere independent variables and Tobin's q as the dependent
are systematic industry differences betweenfirmsthatare variable.We saved theunstandardized residualsfromthis
ratedhighon productquality(and/orinnovativeness) and regression andthenusedthemas thesurrogate forTobin'sq
thosethatareratedlow.A close examination of thetopand in all structural equation models (SEMs). We also applied
bottomfirmson the dimensionsof productqualityand thisapproachto obtainthesurrogates forstockreturn.
innovativeness allaysthisconcern.We findthatboththetop
and thebottomfirmsin termsof theirinnovativeness and
productqualityratingscovera variety ofindustries, suchas Analysesand Results
retail,services,and manufacturing. More specifically, top
innovativenessfirmsincludeApple, Google, Procter& Measurement Model Results
Gamble,FedEx, Nike, and Target,amongothers;bottom Followingtheworkof Andersonand Gerbing(1988), we
innovativenessfirmsinclude UnitedAirlines,Dillard's, employconfirmatory factoranalysis (CFA) to test the
Kmart,and QwestCommunications, amongothers,accord- of
validity the Overallmodelstatistics
measures. showthat
ing to Fortune's large-scalesurvey data in 2005. In other thechi-squareforthemodelis 90.73 (d.f.= 48, p > .05),

October2006
ofMarketina.
81 Journal

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 12
1.00

11
1.00
-.02

10 .01
1.00 -.03

9 .08
1.00
-.04
-.03

8 .09 .06
1.00 -.02
-.05

7 .04.11 .10
1.00 -.03 -.04

6
.08.06.07 .28**
1.00 -.03
-.05

5 .42**
.11"
.10.09 .33""
1.00 -.07
-.08
Variables
of
2
4 .02.02.05
.10.14* .19""
1.00 -.00
-.05

TABLE
Statistics
3 .81"" .11.01.04.04
.13* .20**
1.00 -.02
-.04

2
Descriptive .22**
.18** .18** .07.05.02 .02.22**
.17""
1.00 -.03

1
.20** .78**
.72** .13* .06.03.05
.14" .19""
1.00 -.03
-.04

SD .958.77 .46.08.07.90 .13

1.10
1.42 1.35 1.68 9.87

.29.06.04 .07
M 6.03 6.06 1.82
5.97 2.87 3.68
4.16
79.06

asset)
capability
of
intensityintensity
satisfaction (logfocus
quality
q return
intensity
size

.05. .01.
CSR Innovativeness
Product
Customer Stock R&DFirm
Advertising
Tobin's ROA
Strategic
Competition
< <
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.11.12.
Variables *p**D

Customer
SocialResponsibility,
Corporate Satisfaction, Value/9
andMarket

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andthecomparative fitindex(CFI),goodness-of-fit index callysignificant, in support ofH. Weassessthesignifi-
(GFI), and rootmeansquareerrorof approximationcanceofthereported SEMpathestimates through a boot-
(RMSEA)aresatisfactory (.94,.92,and.06,respectively). strapping approach with1000resamples. AstheCFI,GFI,
Aswereport inTable3,theCFAresults lendsomesup- andRMSEAindicate, Model1fits thedatawell.
portfortheconvergent validityforallthemeasures because H2 predicted thatCSR wouldpositively influence a
allestimated loadings ofindicators fortheunderlying con- firm's market valueandthatcustomer satisfaction
would
structsaresignificant (i.e.,smallestt-value= 6.53,p < .05). mediate thisinfluence. To establish theexistence ofthis
Cronbach's alpha of the constructs exceeded the .7 thresh- mediation four
effect, conditions should hold(Andrews et
old (Nunnally 1978). The minimum reliabilityof these al. 2004):(1) The predictor variable (CSR) should signifi-
measures is .85,as we reported. In addition, theaverage cantly influence themediator variable (customer satisfac-
varianceextracted (AVE)across theconstructs exceeds the tion);(2) themediator should significantly influence the
.5 benchmark (see Fornell andLarcker 1981). As Table 3 dependent variable (market the
value);(3) predictor (CSR)
shows, thesmallest AVEoftheconstructs is .72.Thedata variableshouldsignificantly influence thedependent
alsosupported discriminant validity ofthemeasures. We variable(market value);and(4) after we control forthe
examined pairs of measures using the constrained model mediator variable(customer the
satisfaction),impact ofthe
andunconstrained model ina seriesofchi-square difference predictor (CSR) on the dependent variable (market value)
tests(Anderson andGerbing 1988).Thetestresults consis- shouldno longer be significant (forfullmediation) or
tentlyindicated thatfor each pair of constructs,the uncon- shouldbe reduced in (for
strengthpartial mediation)(Baron
strainedmodels fitthedatabetter thantheir constrained andKenny 1986,p. 1177).
counterparts, suggesting discriminant validity.In addition, As Table4 shows,Model1 meetsthefirsttwo
wecompared theestimated AVEofeachmeasure with the conditions. Thatis, CSR affects customer satisfaction.
squared correlation between-measure pairs(Fornell and Furthermore, satisfaction significantly affectsbothTobin's q
Larcker1981).In all cases,we foundthattheAVEs andstock return,which is consistent with existingstudies
exceeded thesquared correlations, furtherconfirming the (Anderson, Fornell, andMazvancheryl 2004;Boltonand
discriminant validity oftheconstructs. Drew1991;Fornell etal.2006).Model2 qualifies thethird
condition; thepredictor variable of CSR affects market
Results forthe MediatingRole of Customer valueinterms ofTobin's andstockreturn. As Table4
q
Satisfaction shows, Model2 doesnotinclude themediator ofcustomer
In testingthemediating roleofcustomer satisfaction, we satisfactionandappears tofitthedatareasonably well.The
usedSEMtoconsider explicitlythepossible biasofmea- fourth conditionholds iftheeffects ofCSRonmarket value
surement error onpath estimates.Consistent with theproce- become insignificant orlesssignificant afterthemediator of
dures inpsychology (e.g.,Holmbeck 1997)andmarketing customer satisfaction is included. Model3 results (no-
(Andrews etal.2004;Handelman andArnold 1999;Selnes mediation modelin Table4) showthattheinclusion of
andSallis2003),ourSEMsnotonlyaccount formeasure- customer satisfactiondiminishes thestrength oftheeffect of
ment errorbutalsoallowfora comprehensive testofthe CSRonfirm market value. Themain effectsofCSRonboth
hypotheses related tomediation, moderation, andmediated Tobin's q andstock return arenolonger Thus,
significant.5
moderation.
Table4 reports theresults oftheSEMs.Hi predicted 5Wealsoemployed ordinary leastsquarestotestthemediation
thatCSR wouldpositively affect customer satisfaction. hypotheses. Theresults areconsistent andsuggest support
strong
Model1 examines thisprediction, andtheresult is statisti- forthemediationresultsofCSR.However, becauseSEM offersat

TABLE 3
Results of the CFA

Construct Items FactorLoading t-Value AVE CR

CSR .75 .90
CSR -->CSR01 .69 13.43
CSR --->
CSR02 .71 13.55
CSR --->
CSR03 .75 13.54
Innovativeness (IN)
capability .74 .87
IN -->IN01 .67 11.10
IN-->INO2 .68 11.16
IN-> INO3 .62 9.98
Productquality(PQ) .76 .91
PQ -> PQ01 .78 13.39
PQ -> P002 .83 13.92
PQ --->
P003 .80 13.51
Customersatisfaction
(CS) .72 .85
CS -->CS02 .50 7.21
CS -->CS03 .48 6.92
CS -->CSO4 .46 6.53
Notes: Allt-valuesare significant(p < .05); X2= 90.73 (d.f.= 48, p > .05), CFI = .94, GFI = .92, and RMSEA = .06. CR = constructreliability.

10/Journal
ofMarketing,
October2006

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 TABLE 4
SEM Results for Mediation Effects

SEM Estimates
ModelSpecifications x2 d.f. X2diff
(d.f.diff) CFI GFI RMSEA
Model1 362.10 101 Comparedbase .94 92 .05
Model2 112.82 59 .92 .91 .07
Model3 391.58 96 29.48**(5)a .91 .89 .07
Model4 345.05 97 17.05**(4)b .96 .94 .04

Full Partial
Mediation: PV -->DV: Nonmediation: Mediation:
Model 1 Model2 Model3 Model4
CSR -> T0 .14* .09
IN -> T0 .10 .10 .11*
PQ -> TQ .17** .14* .12*
CSR x IN -> TQ .14* .09
CSR x PQ -)) TQ .20** .15* .13*

CSR -> CS .23** .23**

IN-> CS .20** .19""
PQ -> CS .28** .26""
CSR x IN -> CS .12* .14*
CSR x PQ -->CS .18** .18""

CSR SR .13* .08

IN-> SR .08 .07
PQ -> SR .11* .09
CSR x IN -> SR .10 .07
CSR x PQ -> SR .18** .12* .11"

CS -> TQ .25** .23** .22**

CS -> SR .22** .21** .19**

R2
CS .34 .32
TQ .46 .41 .45 .48
SR .38 .34 .37 .39
*p < .05, one-tailedtest.
**p< .01, one-tailedtest.
aThe resultsof the differencebetween Model 1 and Model 3.
bThe resultsof the differencebetween Model 1 and Model 4.
Notes: CS = customersatisfaction,IN = innovativenesscapability,PQ = productquality,TQ = Tobin'sq, and SR = stock return.Model 2 (PV --->
DV) does not include the mediator of customer satisfaction.Model 3 (nonmediationeffects) includes the mediator of customer
satisfaction.

customer satisfactionseemsto mediate fullythedirect Results forthe Moderating Role of Corporate

impact ofCSR onfirm marketvalue(though itdoesnot Abilities
mediate fully the interaction
effectsbetween CSR and that suchas innovativeness
on
abilities market as we detail As H3predicted abilities,
corporate
corporate value, next). and
capability product wouldmoderate
quality, theimpact
such,thedataprovidestrong support forH2, which ofCSR onmarket value.Table5 reports
thehierarchical
predicted thatCSR wouldincrease a firm's long-term SEM results related
tomoderation effects. the
financial the mediator of customer workofAikenandWest Following
performance through (1991),we mean-centered
the
satisfaction.6 CSR, innovativeness
capability, and product-quality
variables
before
generatingtheinteraction
terms,andthen
weaddedtheinteraction
terms hierarchicallyModel2
from
leasta weaktestofcausalpathways
andeasilycomparesdifferent toModel3.7Theresults
inTable5 show thattheinteraction
rivalmodels,
butordinary
leastsquaresdoesnotaccount formea-
surement we report
error, theresults
basedon theSEMs forall biaswas nota severeproblem.
7Multicollinearity Thehighest
inthisstudy.
hypotheses variance
inflation
factorwas3.06,andthelargestconditionindex
6Wealso testedthehypotheseswithsingle-yearitemsforthe was3.51.Notethatina mean-centeredinteraction-effects
model,
and dependent
predicting variables(ratherthanthereported theestimated ofoneindependent
coefficient variableis obtained
multiple-years-based items).The resultsare similarin
separate undertheassumptionofthemeanvalueofother variables.More-
andfurther
pattern thehypotheses.
support over,theentry
oftheinteractions
terms forCSR, innovativeness

Social Responsibility,
Corporate Customer and Market
Satisfaction, Value/11

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 TABLE5
Hierarchical SEM Results

SEM Estimates
RivalModels x2 d.f. (d.f.diff)
X2diff CFI GFI RMSEA
Model1 15.83 5 96.99**(54)a .90 .86 .08
Model2 177.09 40 64.27**(19)b .91 .89 .07
Model3 112.82 59 Comparedbase .92 .91 .07

DirectEffects: DirectEffects: ModeratedEffects:

Model 1 Model2 Model3
CSR --->TQ .14* .12* .14*
IN --->
TQ .11* .10
PQ -->TQ .17** .17**
CSR x IN--->
TQ .14*
CSR x PQ --->
IQ .20"*

CSR -4 SR .12* .13* .13*

IN-> SR .08 .08
PQ -, SR .10 .11*
CSR x IN-->SR .10
CSR x PQ -->SR .18**

R2
TQ .30 .35 .41
SR .28 .29 .34
*p < .05, one-tailedtest.
**p< .01, one-tailedtest.
aThe resultsof the differencebetween Model 1 and Model 3.
bThe resultsof the differencebetween Model 2 and Model 3.
Notes: CS = customersatisfaction,IN = innovativenesscapability,PQ = productquality,TQ = Tobin'sq, and SR = stock return.

term ofCSR x product quality significantly affects both ticalapproach. itis similar
Essentially, tothefourcondi-
Tobin'sq and stock return, though the interaction term of tionsof mediation we described previously, butitrequires
CSRx innovativeness affects
capability only Tobin's q. enteringthe interactions
items (CSR x innovativeness capa-
Tofacilitatetheinterpretation ofthemoderating effects, bility andCSR x product quality) rather thanthemain
Figure2,PanelA,illustrates therelationship between CSR effectof CSR. Morespecifically, to establish mediated
andTobin's q forfirms withloworhighinnovativenessmoderation, fourspecificconditions must be met: (1) The
(seeAiken
capability andWest1991,pp.12-14).Figure 2, interaction (CSRx innovativeness
variables capability and
PanelA,suggests that firms with lowinnovativeness capa- CSRx product quality)should significantly influence the
bilities
generatenegative market valuefrom CSR,whereas mediator (customer (2) themediator
satisfaction); should
firms withhighinnovativeness generate positive market significantly influence thedependent variable (market
valuefrom CSR.However, Figure 2, PanelB, showsthat value);(3) theinteraction variables (CSRx innovativeness
though firms withhighproduct quality generate positive capability andCSRx product quality) should significantly
market valuefrom CSR (theupward-sloping line),firms influence thedependent variable (market value);and(4)
withlowproduct quality seemnottobepenalized interms after wecontrol forthemediator variable (customer satis-
ofgenerating market valuefrom CSR(therather flatline). faction), theimpact oftheinteraction variables (CSR x
Assuch, overall,wefind for
support H3 when we use inno- innovativeness and
capability CSR x product quality)onthe
vativenesscapabilityas the measure of corporate abilities, dependent variable(marketvalue) should be no longer sig-
butwefind only partial supportforH3when weuseproduct nificant (forfullmediation) orreduced instrength (forpar-
qualityasthemeasure ofcorporate abilities. tialmediation) (Baron andKenny 1986,p. 1179).Follow-
ing this advice, priorstudies in both strategy (Shinand
Results fortheMediatingRole of Customer Zhou2003)andmarketing (Andrews et al. 2004; Handel-
Satisfactionin theModeratedRelationships manandArnold 1999)have tested hypotheses combining
H4predicted thatcustomer satisfactionwouldmediate the mediation andmoderation.
moderated relationships inH3.Although a testofthiscom- Because thesecond andthird conditions aremet, when
binationofmediation andmoderation is somewhat compli- testingH1-H3, we need to check only for the first and
cated,Baron andKenny (1986,p. 1179)recommend a prac- fourth conditions. Thesignificant paths from these interac-
tionterms tosatisfaction
inModel1 (Table4) suggest that
and
capability, product quality explained more
significantly vari- the firstcondition is also met. In addition, entering the
anceofmarket valuebeyond themaineffects, adding6% more mediator of customer satisfaction indeeddecreases the
forTobin'sq and5% morevariance
variance forstockreturn. impact ofthese interaction
terms from Model2 toModel3

12/Journal
ofMarketing,
October2006

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All use subject to JSTOR Terms and Conditions
 FIGURE 2 Rival Models and AlternativeExplanations
The Moderated Effectof CSR on MarketValue Weconducted additional andruledoutseveral
analyses
A: The ModeratingRole of InnovativenessCapacity competing explanations. Becausethe aforementioned
results
suggest mediation,
partial wefitseveral additional
SEMswith different mediation
partial effects(step-by-step
Tobin's q adding/removing of individual pathsfrom thepredictive
ofCSR,innovativeness,
variables andproduct tothe
quality
3.10 variables
predicted ofTobin's q andstock return).Thepath
ofthebest-fit
estimates partialmediation modelappear in
Figure3 andinthelastcolumn (Model4) inTable4. An
examination of Figure3 suggests threeinsights. First,
althoughthe main effectofCSRis fully mediated bycus-
tomer CSRhasaninteraction
satisfaction, effectwith prod-
uctqualitythatisnotfully,butrather mediated
partially, by
.30 customersatisfaction
(inother words, thisinteraction
effect
between CSR andproduct qualitydirectly influences
Tobin's
q and stock Second,
return). a firm'sproductquality
2 4 6 8 CSR andinnovativeness bothhavedirect andindirect (through
customer influence
satisfaction) onTobin's q performance,
Highinnovativeness
capability whichisconsistentwith priorliterature(Dutta,Narasimhan,
andRajiv1999;Fornell et al. 1996;Rao,Agarwal, and
Lowinnovativeness
capability Dahlhoff 2004). Third, we can rejectseveral alternative
explanations,
including theconjectures thattheimpact of
productquality onmarket value is mediated
fully by satis-
factionandthatinnovativeness capabilityinfluences only
B: The ModeratingRole of ProductQuality firmperformance butnotintermediate outcomes, suchas
customersatisfaction.
Tobin's q Furthermore, we ruledoutseveral rivalmodels. For
example,as wereport inTable4,ourSEMresults suggest
that
thepartial-mediationSEM(Model 4) fits
thedatabetter
3.10 thanthefull-mediation SEM (Model1; x2diff = 29.48,
= 5, p < .05) andthatthefull-mediation
d.f.diff SEM fitsthe
data betterthanthenonmediation SEM (Model 3; x2diff=
=
17.05,d.f.diff4, p < .05). Another forSEM com-
criterion
parisonis the numberof significant parameters (Morgan
.30 and Hunt1994; Selnes and Sallis 2003). We findthatthe
rivalmodelswithfullmediationand nonmediation gener-
ated fewersignificant pathestimates.Thus,our hypothe-
sizedpartial-mediation modelfitsthedatabetterthancom-
2 4 6 8 CSR petingmodels in terms ofboththerelativepredictive
power
of theoverallmodeland therelativenumberof significant
pathestimates.
Highproduct
quality
Lowproduct
quality
Discussion
How is CSR relatedto firmmarket value,andwhydo CSR
initiatives
resultin financialgainsforsomefirmsbutlosses
in Table 4. In particular,
theimpactof CSR x innovative- for others?Our studysuggeststhatthe answerto these
nesscapability
onTobin's q is nolonger significant,
sug- questionsis twofold:(1) CSR affects marketvaluepartially
fullmediation
gesting (thisis notthecaseforstock return, through the mediator of customer and (2)
satisfaction,
inwhich thecoefficients
inbothModel2 andModel3 are returns
toCSRcanbeboth andnegative
positive depending
In
insignificant). theimpact
addition, ofCSR x product
on
quality bothTobin'sq and stockreturnis diminished
still
(but significant), indicating mediation.
partial Thus, thatcontrollingthemediator makestheinfluences of CSR x
theseresults that
themoderation inH3 innovativeness
capabilityandCSR x product qualityno longer
suggest relationships or less significant.
Thisis different
from"moderated
areonly mediated customer in significant
partially by satisfaction,sup- in whichthemoderators
mediation," shouldalso moderate the
portofH4.8 mediator-performancelinkage(BaronandKenny1986,p. 1179).
A pictorialillustrationof the differencesbetweenmediated
8NotethatBaron and Kenny(1986, p. 1179) label the moderation
andmoderated mediation canbe foundintheworkof
we testedas "mediated
relationships whichmeans
moderation," Handelman andArnold (1999,p. 38).

Social Responsibility,
Corporate Customer and Market
Satisfaction, Value/13

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All use subject to JSTOR Terms and Conditions
 FIGURE 3
SEM Results of Best-Fit Partial Mediation Model

Product
Quality

.26"" .12*

.11*
Innovativeness
Capability MarketValue
19"" .Tobin'sq
22**
.13*
.23
Customer
CSR Satisfaction

.19* MarketValue
.Stockreturn
.18"'

.11*
CSR x Product
Quality

.1

CSR x
Innovativeness
Capability

*p < .05, one-tailedtest.

**p< .01, one-tailedtest.
Notes: Bolded paths are hypothesizedrelationships.Dashed paths are supportedpartialmediationresults.We assessed the significanceof all
througha bootstrappingapproach with1000 resamples.
SEM path coefficients

onthelevels ofa firm's

corporate Basedona com- spending
abilities. inanidealway(i.e.,byuncovering therelative,
prehensive secondarydata set,our resultsshow thatcus- and
incremental, impact
synergistic of CSR, advertising,
tomer satisfaction a in
role
plays significant the relationship andR&D on a firm'smarketvalue).
between CSRandfirm marketvalueandthat com-
a proper
bination ofbothCSRinitiatives andproduct-relatedabili- Implications forMarketingTheory
tiesis important.Theseresultshaveimplications forboth Although CSRhasbeenlinked tocustomer responses(e.g.,
marketing and
theory practice. and
Bhattacharya Sen2004;Brown 1998;Brown and Dacin
Beforepresenting theimplications, we notethat 1997), thiswasthefirst marketingstudytoexploretherela-
FAMA's measure
survey-based ofCSRisanimportant lim- tionshipbetween CSRandmarket value.Ourwork extends
itation As we detailed
ofthisarticle. in the"Dataand theresearch stream ontheoutcomes ofCSRfrom perceived
Variables" section,theFAMAratings areonepossible customer responses basedonhypotheticallabexperiments
source ofCSR information and thus restrictouranalysis towardeventual returns
financial basedonlarge-scale sec-
andconclusion. Toinspiregreaterconfidence inourfind- ondary data.It providesa direct answerto thecallsfor
ings,further should
research alsoattempt toreplicateand effortsthatlinkCSRtoa firm's stockperformance(Berens,
extend ouranalysis
with measures
alternative ofCSR.For VanRiel,andVanBruggen 2005;LuoandDonthu 2006;
example, measuring direct
spendingonCSRinitiatives with Rust,Lemon,andZeithaml 2004).Indeed,Brownand
a large-scale recordof CSR monetary expenses across Dacin(1997,p.68)notethat "wedoallgoodthings,... but
many firms (ifobtained
reliablyfrom third-partyagencies wedon'tknow ifwegetanything outofit."Thefindings
orfirms' ownreporting;seeMargolis andWalsh 2003;Orl- pertaining tothesignificantinfluenceofCSRona firm's
itzky,Schmidt, andRynes 2003;Tsoutsoura 2004)would Tobin's q andstock attest
return tothefinancialvalueof
putCSR on parwithmeasures suchas advertising and CSRprograms initiatives.
as strategic Thus,futuremarket-
R&Dinvestments. A clearadvantageofthisdirectapproach ingresearch should examinea wider spectrumofthebene-
isthat marketing would
researchers beabletocompare and fitsofCSR,ranging fromperception-basedoutcomes to
contrast thefinancialreturnsto thesedifferent typesof financial
archive-based returns.

14/Journal October2006
ofMarketing,

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All use subject to JSTOR Terms and Conditions
 A moreimportant contribution of thisresearchis that In particular,
thistheoryholdsthatlow (high)innova-
we identified a routethroughwhichCSR is relatedto a tivenesscompetency in firmsmayserveas a cue ofinferior
firm'smarketvalue. Our resultsof thesignificant CSR - (superior)competitiveness to corporatestakeholders, thus
customersatisfaction -> marketvalue causal chainsuggest signalingweaker(stronger) future performance to financial
thata firm'sCSR helpsbuilda satisfied customer base and investors inthemarketplace. In thelightofsignaling theory,
thatcustomersatisfaction partiallymediatesthe financial we conjecture thatthoughCSR mayhelpfirmsobtaininsti-
returns to CSR. Thismediating roleofcustomer satisfaction tutionallegitimacy(i.e., by being sociallyresponsiveand
is important fortwo reasons.First,it extendstheCSR lit- supportive), firmsthatare less innovative in meetingcus-
eratureby uncovering a previouslyignoredoutcome(i.e., tomerneedsmaysenda negativesignalof incorrect strate-
customersatisfaction) of CSR. Althoughpriorworkhas gic choiceand misguidedfirmpriorities in themarketthat
notedthatCSR shouldaffectvariouskindsof consumer contaminates and degradesthislegitimacy (DiMaggio and
responses,customersatisfaction has notyetbeen explicitly Powell 1983; Scott 1987). The resulting costs of signaled
examinedas one suchoutcome.Second,it also extendsthe noncompetitiveness in themarketmayoutweighthebene-
researchstreamon customersatisfaction (Anderson,For- fitsof CSR and thuslead to negativemarketvalue. Con-
nell,and Mazvancheryl 2004; Fornell 1992) by uncovering ceivably,consumers mayviewCSR activities in firmswith
the antecedents(i.e., CSR) of customersatisfaction. low assetspecificityas opportunistic (i.e., manipulative and
misleading with disguisedsellingpurposes), which causes
Althoughan emergingresearchstrandhas examinedthe
outcomesof customersatisfaction CSR to backfireand leads to consumerboycotts(Sen and
(Anderson,Fornell,and
2004; Anderson Fornell,andRust1997;For- Bhattacharya 2001; Smith2003). It is also possible that
Mazvancheryl
nellet al. 2006; Mittalet al. 2005), effortshaverarelybeen firmsthatare low in corporate abilitieslikelyinvestin less
undertaken toexaminefactors thatincreaseordecreasecus- influential and pure cost-addingCSR activities,such as
cash donations.In contrast,firmsthatarehighin corporate
tomersatisfaction. Overall,thischainedrelationship from
abilitiesimplement "smarter" CSR strategies thatare rela-
CSR to customersatisfaction to a firm'smarketvalue sug-
tivelyidiosyncraticand thusgenerate more long-term finan-
geststhatachievingcustomer satisfactionrepresents one of
cial benefits.We call forfurther of
theunderlying whichthefinancial investigation possible
pathways through poten- oftheobservedasymmetric returns to CSR.
tialof CSR is realizedand capitalized.The notionthatthe explanations
extentto whichCSR is beneficialto thefirmis determined
Implications forMarketingPractice
by how muchCSR buildsa satisfiedcustomerbase points
further researchin a moreprecisedirection whenevaluating Marketers haveponderedwhether companiesshouldtakea
theultimate financial morestrategic tackon CSR andhow"doinggood"can con-
impactofCSR.
our findingssuggestthatthe financial tributetotheirbottomline(BrownandDacin 1997;Sen and
Furthermore,
returns to CSR are notthe same,butratherare different, Bhattacharya 2001). These are important issues thathave
acrossfirmswithdifferent internal strongmanagerialimplications becauseprudent practition-
situations.In particular,
ers face toughchoicesin allocatingtheirlimitedresources
our findingthatthepositivefinancialreturns to CSR are
andin prioritizing
different initiatives.
strategic
amplified in firms with higherproductquality indicates that
a propermixorcombination ofexternal CSR initiatives and Evenevangelists suchas Nardelli executive
[chief officer
internalcorporateabilitieslikelygeneratesand sustains of HomeDepot]stopshortof sayingthatcompanies
financialvalue for the firm.In this sense, we provide shoulddivertmoney fromotherstrategic tosup-
priorities
port[CSR]. But at corporationslikeHomeDepotand
empiricalevidencefortheresource-based view.Thatis, in [General goodworksarebeingbredintoBig
Electric],
support of the resource-based view (Barney1986; Penrose Business.`It'sjusttherightthingto do,'saysNardelli.
1959; Wernerfelt 1984) and marketingcapability(Day GoodPR?Sure.Moneywellspent? Thegoodwillrefund
1994; Vorhiesand Morgan2005) literature, we findthata couldbe inthemail.(Grow, Hamm, andLee 2005,p. 78)
firm'ssustainablecompetitiveadvantagesindeed result Our findingthatCSR contributes positivelyto market
froma complementary "bundle"of valuableinternal(cor- valuesuggeststhatmanagerscan obtaincompetitive advan-
porateabilities) and external(CSR initiatives) assets.Thus, and more financial
benefits in
tages reap by investing CSR.
further researchis encouraged to go beyondthesimple,uni- To be morespecific,we calculatedthatfora typicalcom-
versaleffects of CSR and explorecontextual situations that
panyin oursamplewithan averagemarket valueofapprox-
moderate theassociationsbetweenCSR andmarket value. imately$48 billion,one unitincreaseofCSR ratingswould
Finally,existingmarketing researchhas beenenthusias- resultin approximately$17 millionmoreprofits on average
tic aboutthepositivebenefits of CSR, butunfortunately, it in subsequentyears,a substantialincrease of financial
has potentialnegativeoutcomes(foran exception,see Sen returns.
and Bhattacharya 2001). Our researchindicatesthatCSR Indeed,companiesshouldrealize thatCSR initiatives
canharbora darkside.Thatis, in firms thatareless innova- can representa robustpublicrelationsstrategy,
particularly
tivein nature, CSR maydecreasecustomer satisfaction lev- in the current marketenvironment in whichstakeholders,
els and ultimately reducethefirm'sfinancialreturns. This suchas customers (and employees),mayhavestrongsocial
findingof the negative returnsto CSR in the low- concerns.Creativeexecutivesat Home Depot, IBM, Wal-
innovativeness conditioncan be understood fromtheper- Mart,GeneralElectric,and Cisco are engagingin "smarter
spectiveof competitive signalingtheory(Caves and Porter corporate giving"thanmerelywriting checks(Berner2005,
1977; Stigler1961). p. 68). Forexample,HomeDepotdonated2 millionhoursto

SocialResponsibility,
Corporate Customer andMarket
Satisfaction, Value
115

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All use subject to JSTOR Terms and Conditions
varioustypesof community services,and IBM gave away reputation in thepresenceof corporatescandalsor regula-
morethan100 specializedbusinessapplications (i.e., trans- toryscrutiny. In addition,CSR can boostinternal employee
lationserverschangingEnglishe-mailsintoSpanishmes- moraleand commitment withinthe firm(Godfrey2005;
sages) in heavilyLatino-populated schoolsand community McGuire,Schneeweis,and Branch1990) and attract more
groups.Closerexamination oftheCSR portfolios ofsomeof capable,youngtalentswho aretrying to "marry theirwork
thetop-andbottom-rated firms in termsofCSR shedsaddi- and nonworklives" (Grow,Hamm, and Lee 2005; for
tionallighton how managersmay derivepositivemarket detailedbenefitsof CSR and cause-related marketing, see
returnsfromCSR and/oravoid negativereturns. That is, Varadarajan and Menon 1988,p. 60). Importantly, we sug-
manyof thefirmsat thetopof theCSR heap (e.g., United gestan additionalinsightto managers:CSR initiatives also
Parcel Service,Alcoa, VerizonCommunications) seem to influencecustomers'satisfaction levels,whichultimately
have integrated CSR tightly withtheirbusinessstrategies. lead to highermarket returns. To managers, thismeansthat
Forexample,thesefirms investin a hostofemployee-related building satisfactionis an important intermediate step in
such
initiatives, as education and safety, thatengender iden- converting CSR intofinancial gains.
tificationand instillprideamongemployees,all of which However,ourfindings oftheboundary conditions ofthe
influence customer satisfaction
andmarket value.Moreover, returns to CSR suggestthatmanagersshouldnotignorethe
thesefirmshaveemployeevolunteerism programs in which inherent trapsand pitfallsof CSR. For example,we show
employees are visiblecontributors to the local communities. thatfirmsarenotalwaysable to benefitfromCSR actions.
Thishelpscapturecustomers' favorable attention. Whencompaniesare notinnovative, our findings indicate
In contrast,
firmsatthebottomoftheCSR heap,suchas thatCSR actuallydecreasestheirmarket return.Thus,CSR
Toys`R' Us andMitsubishi Motors,seemtobe perceivedas seemsto be a double-edged sword; without propersupport
"irresponsible" by dint of mistreating workersand/orcon- of corporateabilities,such as innovativeness, CSR can be
cealingproduct defect information. Such negativeactions harmful to firmperformance. Indeed,when"doingbetterat
tendto receivemediacoveragein today'sscrutiny-intensive doinggood" (Bhattacharya and Sen 2004,p. 9), itis impor-
world.Viewedin conjunction withourresults,theseexam- tantformanagersto considerCSR initiatives in thelightof
ples suggestthatmanagersshouldnotonly"gettheirhouse thefirm'scorporateabilities.In particular, less innovative
in order"to avoidnegativereturns to CSR butalso adoptan companiesmaybe betterofffinancially by avoidingCSR
integrated, strategicperspectiveand allocateresourcesto actions.Managersshouldunderstand thata misalignment of
CSR programsforsuperiormarketperformance. Afterall, CSR withinternalfactorscan be detrimental and lead to
"itis no longeran option[forcompanies]to siton theside- decreasedmarketvalue.As a consequence,marketers need
lines"(Grow,Hamm,andLee 2005,p. 77; Smith2003). to examinecarefully theorganizational contextin totality
Our findings thatCSR increasescustomersatisfaction, beforeimplementing CSR initiatives.
which in turnleads to positive financialreturns,may In conclusion,thisresearchsuggestsa morenuanced
improvemanagers'understanding of whyCSR matters. In understanding of themarket returns to CSR initiatives.Our
particular,marketers may have alreadyknownthatCSR findingsseem to indicatethat"doinggood" has compli-
helpspromoteexternalsocialbenefits, suchas publicgood- catedimplications and thatcustomersatisfaction plays an
willoutsidethefirm(HoustonandJohnson 2000; McGuire, important mediating role in therelationship betweenCSR
Sundgren, and Schneeweis1988),whichcan polisha firm's andfirmmarket value.

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