Government Corruption and Corporate Social Responsibility: An Instrumental Perspective

Abstract

This study examines the relationship between government corruption and corporate social responsibility (CSR). While existing research in CSR has suggested that reduced moral incentive is a key reason for firms’ low CSR engagement in regions with high government corruption, we postulate that government corruption in the region where a firm is headquartered also decreases its instrumental motivation to engage in CSR. The instrumental value of CSR will significantly decrease due to the diminished returns, which come from decreased stakeholder reciprocation and increased risk of becoming a rent-seeking target of corrupt officials. We furthermore suggest that the negative effect of government corruption on CSR may change depending on the levels of firm political risk, financial performance, and firm sales to government, which alter the returns of CSR. The findings, based on a sample of publicly listed US firms and political corruption data from the US Department of Justice during the 2003 through 2013 period, support our arguments. Our study contributes to CSR literature by highlighting and testing the instrumental perspective to examine the influence of government corruption on CSR.