Introduction Corporate Social

According to the Committee Encouraging Corporate Philanthropy (CECP) 2014, a

nonprofit coalition of 150 CEOs of the world’s largest companies, the amount of corporate

donations among the majority of U.S. corporations listed in Fortune 500 has been increasing

steadily in the last decade and is expected to increase in the coming years. Walmart Stores Inc.,

for instance, spent more than $ 311 million in corporate donations in 2013. Similarly, Chevron

Corporation spent upwards of $274 million in corporate donations in 2013. The largest U.S.

firms and their CEOs are responding to the growing emphasis on social responsibility to give

something back to their employees, the community, and society at large. Commonly referred to

as “doing well by doing good” (Embley, 1993; Falck & Heblich, 2007), such efforts can help

businesses address stakeholders’ demand for social as well as economic goals. There is a belief

that ongoing engagement in corporate social responsibility (CSR) has a positive impact on

people around the world while contributing to corporations’ business success. Such belief in the

importance of CSR has become a major business trend among U.S. corporations.

CSR as a business practice and philosophy has taken an important place in the way

businesses operate and serve their stakeholders. CSR refers to “context-specific organizational

actions and policies that take into account stakeholders’ expectations and the triple bottom line of

economic, social, and environmental performance” (Aguinis, 2011, p. 855). This definition

indicates that businesses should have responsibility beyond their immediate economic concern

and should act in a way that contributes and enhances broader societal goals. CSR primarily

embraces economic, legal, ethical, and philanthropic responsibilities and the dimensions of CSR

include the obligations a business has to its stakeholder’s groups (Carroll, 1991). Over the past

half century, CSR has increasingly been integrated into mainstream business thinking, and

nowadays, most U.S. publicly-traded firms (e.g., Microsoft, Google, and Walt Disney) claim to

engage in some form of CSR. The main benefits of engaging in CSR include generating

intangible assets, including building corporate reputation and employee commitment, and

tangible assets, including the positive impact on financial performance. Research in this area

suggests that being a socially responsible business helps create goodwill, build a positive

organizational image, differentiate them from their competitors, and, as a result, promote

longterm profits for business (Boynton, 2013). Indeed, more firms increasingly embrace CSR as

their employees demand their firms to be socially responsible, customers expect better business

practices, and investors realize the economic rewards of sustainable business models. Beyond the

immediate task environment, business CSR engagement also serves the needs of communities

around the world and fulfills the responsibilities businesses have to the public.

1.2 The Importance of Corporate Philanthropy

Corporate philanthropy is considered one of the core dimensions of CSR (Aguinis &

Clavas, 2012; Carroll, 1991; Porter & Kramer, 2002). The origin of corporate philanthropy in the

U.S. dates back to the rise of industrial age in the 19th and early 20th century, when businessmen

like Henry Ford and John D. Rockefeller established philanthropic foundations (Dietlin, 2011).

Corporate philanthropy has since been transformed from piecemeal individual philanthropic acts

(e.g., philanthropy mainly driven by morality) to a major aspect of corporate CSR practices.

Corporate philanthropy is, nowadays, a widespread business practice in large multinationals as

well as small-and medium-sized firms across the globe. Despite the dominant altruistic

orientation, corporate philanthropy has increasingly complemented the firm’s strategic activities

and enhanced the firm’s social and financial performance (Porter & Kramer, 2002). Therefore, it

can be argued that corporate philanthropy has evolved dramatically from a basic moral obligation

to a strategically-driven activity of the firm. As Porter and Kramer (2002, p. 58) put it,

“True strategic giving, by hand, addresses important social and economic goals simultaneously,

targeting areas of competitive context where the company and society both benefit because the

firm brings unique assets and expertise.”

Corporate philanthropy can often be “the most cost-effective way for a firm to improve its

competitive context” (Porter & Kramer, 2002, p. 9). Many firms invest a significant amount of

resource expenditures on philanthropy in order to build a strong company image. For example, a

2013 report from the Committee Encouraging Corporate Philanthropy indicates that 59 percent

of the largest Fortune 100 firms donated significantly more in 2012 compared to 2007, the year

before the global recession sets in, and aggregate giving rose by 42% ($4.48 billion) from 2007

to 2012. The ten largest U.S. corporations donated over 2.1 billion dollars in 2013 and this figure

has increased in 2014. Many firms provide support to nonprofits and social causes primarily

through company-sponsored foundations as well as corporate direct giving, both of which are

closely tied with the parent company’s business interests. As shown in Figure 1 below, the largest

U.S. firms and their foundations have increased charitable giving during the past decade (2001-

2012). Similarly, as shown in Figure 2 below, the largest 100 U.S. corporations have increased

total charitable giving both as a percentage of pre-tax profit and as a percentage of revenue

especially after the global recession in 2008.

Indeed, the increasing commitment of corporate resources to philanthropic causes reflects

a widely-held belief among business executives that philanthropy can be “strategic” in that it can

make a substantial impact on society while improving business value and reputation for the firm

(Carroll & Shabana, 2010; Walker, 2002). According to a 2010 survey by CECP, 77 percent of

CEOs noted that “the most important action they can take to prepare for 2020 is to embed social

engagement into business strategy and organizational structure.” For example, Ronald A.

Williams, the CEO of Aetna noted that that “public companies can move the collective needle by

using their human and financial resources to innovative in ways that benefit both private interests

and the public good” (Weiss, Kerdahy & Kneale, 2008, p. 5). Ivan Seidenberg, Chairman and

CEO, Verizon Communications Inc., commented in CECP that “our belief is that corporate

philanthropy expands the business. You can expand the capabilities of your customer base,

business and society by doing the right thing.” These and other executive views also highlight an

important fact that corporate philanthropy can be driven by leadership values and studying

leaders’ background can help extend our knowledge of the role of corporate philanthropy in

improving firm performance.

Figure 1. U.S. Corporate Foundation Philanthropic Giving from 2001 to 2012 (2,629 Corporate Foundations)

Source: The Foundation Center as of January 27, 2015

3.28 3.43 3.47 3.43

4 4.1

4.4 4.56 4.69

4.91

5.18

5.55

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Billion$

Total charitable giving

Figure 2. Total Charitable Giving among Fortune 100 Firms between 2004 and 2012

Source: Committee Encouraging Corporate Philanthropy as of January 27, 2015

1.3

0.79 0.76

0.83

1.34

1.13

0.96 0.92 0.96

0.16 0.14 0.1 0.1 0.1 0.09 0.09 0.08 0.09

0.2

0.4

0.6

0.8

1.2

1.4

1.6

2004 2005 2006 2007 2008 2009 2010 2011 2012

Total charitable

giving as a % of

pre-tax profit

Total charitable

giving as a % of

revenue

Million$

Despite the stated purpose of enhancing a firm’s public visibility and reputation by engaging in

corporate philanthropy, firms face some criticisms from stakeholders on the tangible benefits of

philanthropy. Some scholars (e.g. Devinney, 2009; Friedman, 1970) have supported this skeptical

perspective arguing that a firm exists primarily to generate economic returns, not to solve societal

problems. Friedman (1970, p. 6) argues that the single social responsibility of business is to “engage in

business activities designed to increase its profit.” On the contrary, other scholars (e.g. Godfrey, 2005;

Wang & Qian, 2011) have strongly supported the positive role of corporate philanthropy in improving

firm performance. These scholars argue that corporate philanthropy can generate positive stakeholder

support which in turn improves a firm’s financial performance. In an effort to address the critics’

concerns on the use of corporate resources toward charitable contributions, firms are increasingly

turning to the strategic use of philanthropy. Research suggests that strategic philanthropy can play a key

role in developing value-creating relationships with primary stakeholders and enhancing a company’s

image (Buchholtz, Amason & Rutherford, 1999; Saiia, Carroll & Buchholtz, 2003). Strategic

philanthropy can also serve as “a common meeting ground for the opponents and proponents of

corporate philanthropy” (Buchholtz et al., 1999, p. 169). Large firms are fundamentally responsible for

strategic philanthropy in practice because they have systematic structures (Marquis & Lee, 2013). For

example, large firms have corporate foundations, employee committees to oversee corporate giving, and

staff functions devoted to the effort to manage their social responsibilities (McAlister & Ferrell, 2002).

In marketing practice, strategic philanthropy has been often associated with cause-related marketing to

support social responsibility (File & Prince, 1998; Vanhamme, Lindgreen, Reast & van Popering, 2012;

Varadarajan & Menon,

1988). Both practices have some dissimilarities in terms of primary focus, time frame, and costs

(McAlister & Ferrell, 2002). Strategic philanthropy focuses on organizing itself, is ongoing, and tends to

require moderate to high resource commitment. On the other hand, cause-related marketing focuses on

the firm’s products, has a limited duration, and involves minimal resource commitment. Both strategic

philanthropy and cause-related marketing help enhance societal welfare and improve the reputation of a

firm. Stakeholder theory (Freeman, 1984) offers an important theoretical support for the relationship

between corporate philanthropy and firm performance, suggesting that favorable social performance is a

requirement for business legitimacy, and tends to be positively associated with firm performance over

the long term.

Donaldson and Preston (1995, p. 82) also suggest that firms respond to “ethical considerations (e.g.

engaging in philanthropy) which are often consistent with long-run increases in profit and value.”

Importantly, the positive effect of corporate philanthropy on the firm provides a reason why there

is a need to examine the relationship between CEO characteristics and corporate philanthropy. Since

corporate philanthropy has become an important strategic tool that organizational senior leaders

manipulate, they are more involved in assessing and shaping corporate strategies (Porter & Krammer,

2002). In addition, past research argues that a firm’s social activities should be met by corporate goals

determined by CEOs who constantly make strategic decisions and choices (Choi & Wang, 2007; Wood,

1991). Furthermore, it has been suggested that CEOs are the primary decision-makers of the

organization such that an examination of CEOs’ attitudes and values toward philanthropy provides

needed insight into the social responsibility actions in general and philanthropic function in particular

(Dennis, Buchholtz, & Butts, 2009). Accordingly, it can be suggested that the relationship between CEO

characteristics and corporate philanthropy should receive much attention. In the following section, I will

provide a brief discussion on the major research gaps that I seek to address in order to advance the

understanding of the leadership predictors of corporate philanthropy and the implications for firm

performance.

1.3 Statement of the Problem

Previous studies have focused on why firms engage in corporate philanthropy (Adams &

Hardwick, 1998; Brammer & Millington, 2005; Fombrun & Shanley, 1990; Godfrey, 2005; Turban &

Greening, 1997; Wang & Qian, 2011; Williams & Barrett, 2000). These studies have shown that

engagement in corporate philanthropy can lead to increased employee loyalty (e.g., employee

commitment), favorable community image (e.g., corporate reputation), and positive media coverage

(e.g., recovering tarnished reputation). As such, it can be suggested that consequences of corporate

philanthropy have been extensively explored to answer the question, “why should a firm give?”

Meanwhile, antecedents of corporate philanthropy have been explored to answer the question, “what

drives firms to give?” The predominant discussion among scholars has been on the managerial (e.g.

Buchholtz et al., 1999; Choi & Wang, 2007; Marquis & Lee, 2013; Wang & Coffey, 1992),

organizational (Adams & Hardwick, 1998;

Brammer & Millington, 2006; Seifert, Morris & Bartkus, 2003), and industry (Amato & Amato, 2007,

2012; Useem, 1988) drivers of corporate philanthropy. Specifically, past research suggested that firms

engage in corporate philanthropy as a means to simultaneously and directly benefit business interests

and those of a beneficiary organization (Saiia et al., 2003; Marx, 1999). The extent to which firms

engage in corporate philanthropy can vary depending on organizational factors, such as firm size,

organizational slack, and advertising intensity (Dennis et al., 2009; Saiia et al., 2003; Wang & Qian,

2011). Past research on corporate philanthropy has generally discussed the intersection of business goals

and the larger societal good help improve the firm’s competitive position (Maas & Liket, 2011; Saiia et

al., 2003). In sum, it can be argued that previous studies of corporate philanthropy have developed from

three aspects, “why give,”

“what leads to give,” and “give strategically.”

Unlike the extensive discussion on firm-level predictors, managerial perspective on corporate

philanthropy has not received much attention (e.g., how, why, and to what degree individuals, such as

CEOs, engage in corporate philanthropy). This line of inquiry is consistent with a recent study’s

(Aguinis and Glavas, 2012) observation that corporate social activities, including corporate philanthropy,

research is virtually absent from journals devoted to organizational behavior and micro-level human

resources management. Therefore, there is a need to focus more on the micro level (e.g., do

characteristics of individuals influence firms’ philanthropic engagement?) than on the macro level (e.g.

are organizational outcomes of corporate philanthropy beneficial to the firm?). In addition, there might

be some link between CEO characteristics and corporate philanthropy. Several scholars suggest that

CEOs think strategically about philanthropy to enhance brand name recognition, employee productivity,

and even to overcome regulatory obstacles (Seifert et al., 2003; Smith, 1994). Despite the growing

interest in the effect of CEO characteristics on CSR in general and philanthropy in particular, the

relationship between CEO characteristics and corporate philanthropy is under-developed and has not

received close empirical scrutiny.

Past research (e.g. Choi & Wang, 2007; Godfrey, 2005) has focused more on CEOs moral

background and characteristics, such as CEOs’ integrity and altruism, to explain a firm’s philanthropic

decisions. These studies, however, leave room for further explanation as to whether CEO characteristics

predict corporate philanthropy. This is because corporate philanthropy can be driven not only by non-

business community issues related to CEO altruism but also by business-related issues, both of which

benefit the firm’s strategic position. To fill this research gap, I draw from the upper echelon theory

(Carpenter, Geletkanycz & Sanders, 2004; Hambrick & Mason, 1984) to explore how leaders’

background characteristics might influence their firms’ engagement in corporate philanthropy. Thomas

and Simerly (1994) suggest that the demographic characteristics of CEOs (e.g., age, functional

background, and education) offer reliable proxies for visible social activities of CEOs. Pedersen and

Neergaard (2009) also suggest that managerial perceptions of corporate social activities, including

corporate philanthropy, are influenced by a great deal of heterogeneity (e.g., age, gender, education, and

functional backgrounds). In addition, it might be that founder CEOs have wide strategic options and

more power over their boards (Mousa & Wales, 2012) and such status can influence corporate

philanthropy. Despite the practical importance of the relationship between founder status and corporate

philanthropy, that relationship has not received empirical investigation.

Firm size, organizational slack, and advertising intensity have been explored as important

organizational factors that influence corporate philanthropy (Dennis et al., 2009; Seifert et al., 2003;

Wang & Qian, 2011). What scholars argue is that bigger firms with more slack resources and advertising

intensity have a positive association with corporate philanthropy. What is missing from these discussions

is firm age as an important organizational context. In other words, the relationship between firm age and

corporate philanthropy has not received much scholarly attention. For instance, Logsdon, Reiner and

Burke (1990) observed in an exploratory study that firm age might be significant in explaining

placement of corporate philanthropy. Particularly, past research has suggested that older firms tend to be

increasingly inflexible so that firm age may be an important indicator of reduced executive discretion

(Finkelstein, Hambrick & Cannella, 2009). Although the individual CEO’s influence on corporate

philanthropy might vary as a firm grows, the role of firm age on the relationship between CEO

background characteristics and corporate philanthropy has not received much attention. Therefore, it is

worth exploring this relationship.

Although corporate philanthropy has developed from a wide range of theoretical frameworks,

scholars have not yet given much thought to whether firms proactively engage in corporate philanthropy

to strengthen their business and corporate strategies. Particularly, the relationship between corporate

philanthropy and unrelated diversification is under-developed. Unrelated diversification is one of core

business strategies which help firms expand new markets. For example, when firms pursue unrelated

diversification strategies, they usually experience a wide range of varying demands from stakeholders in

distant industries or their subsidiaries (Chatterjee & Wernerfelt, 1991). Corporate philanthropy can

generate reputational assets in the new market (Hess, Rogovsky & Dunfee, 2002), strengthen marketing

and branding initiatives (Lii & Lee, 2012; Ricks Jr, 2005), and improve relations with local governments

(Wang & Qian, 2011). From this phenomenon, it can be suggested that firms can consider philanthropic

activities as part of long- term competitiveness and a means to strategically open new markets.

In addition, it is likely that the pressure for engaging in corporate philanthropy would increase

among international firms with business activities across countries and culture. Deresky (1997) suggests

that the philanthropic activities of multinational corporations that operate in foreign countries may be

characterized as strategic, clearly targeted, and linked to the overall objectives of the firm. In addition,

when firms expand their businesses in a foreign market

(Sharfman, Shaft & Tihanyi, 2004), they experience a wide range of stakeholder’ pressures.

Corporate philanthropy can be used as a means of reducing these challenges. Despite the importance of

corporate philanthropy on a firm’s internationalization, there is a lack of theoretical explanation and

empirical evidence as to whether corporate philanthropy advances a firm’s internationalization strategy.

Similarly, expansive global strategic posture (in terms of geographic market diversification) can help

firms leverage R&D costs and knowledge across countries (Carpenter & Fredrickson, 2001; Kim &

Mauborgne, 1991). It has been suggested that corporate philanthropy may be an opportunity for

internationally operating firms, but also for investing in legitimacy in a region considered to be the main

emerging market for the country (Bohnsack, 2012; Whiteman, Muller, Van der Voort, Wijk, Meijs, &

Pique, 2005). It is reasonable to expect that firms are encouraged to engage in corporate philanthropy to

develop a commanding international presence. In sum, I explore how CEOs’ background characteristics

predict the degree of firms’ engagement in corporate philanthropy and the complimentary theoretical

relationship between corporate philanthropy and a firm’s diversification profile (such as unrelated

diversification and global strategic posture).

1.4 Purpose of the Study & Research Questions

In this dissertation, I examine the effect of CEOs’ background characteristics on corporate

philanthropy and firm diversification profile. More specifically, I examine the relationships between

CEOs’ background characteristics and corporate philanthropy. In doing so, I focus on four aspects of

CEO background characteristics (i.e. CEO founder status, functional background, civic engagement, and

education) and examine whether they are associated with the degree of firms engagement in corporate

philanthropy.

First, what is the relationship between CEO founder status and corporate philanthropy?

Founder CEOs are likely to hold a psychological bond with their firms (Peterson, Galvin &

Lange, 2012). Founder CEOs’ intrinsic motivation could lead them to engage in socially responsible

activities that meet various stakeholder demands, such as corporate philanthropy. Second, what is the

relationship between CEO functional background and corporate philanthropy? Corporate social

performance can be a reflection of CEO functional background

(Melo, 2012). Thus, it might be anticipated that a certain aspect of a CEO’s past work experience in jobs

within functional areas of organizations can influence corporate philanthropy. Third, what is the

relationship between CEO civic engagement and corporate philanthropy? CEOs often serve as active

members in community groups or associations and they participate in civic affairs as part of their

strategic mission. Doing so can be motivated by a desire to create the local community development and

a more stable political environment that ensures their business profitability. Fourth, what is the

relationship between CEO education and corporate philanthropy? Bennett (2012) argues that better

educated people have wider mental horizons that cause individuals to recognize the value of charities

concerned with the external environment. Therefore, it is expected that CEOs’ education can play an

important role in determining the choice and emphasis on corporate philanthropy. In addition, I examine

the moderating role of firm age on the relationship between CEO background characteristics and

corporate philanthropy. Although older firms would be expected to be more well-known and have

greater philanthropic engagement, it is reasonably expected that a CEO’s influence on corporate

philanthropy varies as a firm grows.

Furthermore, I examine the role of corporate diversification profile on corporate philanthropy

and firm performance. Past research suggests that firms increase philanthropic expenditures strategically

as a means to open new markets where they are not familiar with and the pressures for engaging in

corporate philanthropy increase among international firms (Merz,

Peloza & Chen, 2010). Specifically, I examine a firm’s diversification strategy as the mechanism

through which corporate philanthropy influences firm performance. Since the ultimate goal of a firm’s

social activities, including corporate philanthropy, is to maximize performance, it is worth exploring the

interaction, including corporate philanthropy – firm performance relationship through the mechanism of

corporate diversification profile.

In sum, there are four major under-developed research areas in the literature that will be

explored in this dissertation. First, there is a need to examine the relationship between CEO background

characteristics and corporate philanthropy. Second, the role of firm age on the relationship between CEO

background characteristics and corporate philanthropy should receive much attention. Third, whether

firms proactively engage in corporate philanthropy to strengthen their unrelated diversification strategies

should receive an empirical investigation. Fourth, the relationship between corporate philanthropy and

firm performance needs to be examined particularly under corporate diversification profile (e.g. how

corporate philanthropy influences firm performance through unrelated diversification and global

strategic posture). I intend to answer the following three research questions:

1) Do CEO background characteristics influence the level of corporate philanthropy? If so, why?

2) Does firm age moderate the relationships between CEO background characteristics and the level

of corporate philanthropy?

3) Does corporate diversification profile mediate the relationship between the level of corporate

philanthropy and firm performance?

1.5 Significance & Contributions of the Dissertation

1.5.1 Contributions to Corporate Philanthropy Research

In this dissertation, I offer several contributions for research. First, this dissertation contributes to

the growing scholarly interests in terms of CEOs’ influence on corporate philanthropy. It has been

suggested that CEOs are requiring greater strategic accountability in corporate giving programs (Saiia et

al, 2003) and that corporations undertake strategic philanthropy as long as direct economic benefits can

be gained by doing so (Sánchez, 2000). Therefore, an examination of whether CEO background

characteristics influence corporate philanthropy helps to fulfill research interests.

Second, I extend the literature on corporate philanthropy to examine the strategic use of

philanthropy. It has been suggested that traditional altruistic models of philanthropy are becoming less

relevant because it is generally considered a non-strategic explanation of corporate giving which ignores

the profit maximization goal and other strategic goals of the firm (Neiheisel, 1994; Sánchez, 2000).

Corporate giving activities have evolved into far more strategically market-oriented approaches like

targeted grants intended to optimize economic return as well as social returns per philanthropic dollar

(Sherblom, 2007).

Third, drawing upon the institutional and stakeholder perspectives, I offer a new attempt to

empirically examine the link between corporate philanthropy and unrelated diversification. For example,

faced with various challenges (e.g., social, legal, and regulatory), corporate diversification increases a

variety of stakeholder pressures in the firm’s external environment that arise (Brammer, Millington &

Pavelin, 2006; Sharfman et al., 2004). In addition, highly diversified firms not only suffer from a lack of

coherence in terms of underlying resources

(Montgomery & Wernerfelt, 1988) but they also have to deal with heavy stakeholder demands.

These pressures might be mitigated when engaging in corporate social activities through which unrelated

diversifiers can manage a wide range of stakeholders’ demands.

Fourth, although previous studies (Markides & Williamson, 1994; Palepu, 1985; Rumelt, 1974)

suggest a negative relationship between unrelated diversification and (short-term) financial performance,

this dissertation provides a different perspective to corporate diversification strategy. For example,

corporate philanthropy helps to generate reputation and branding initiatives in the new markets so that it

can improve the firm’s market positions (Hess et al., 2002; Ricks Jr, 2005). In this dissertation, I provide

scholars with a promising suggestion that unrelated diversification may not necessarily be an inferior

strategy for the firm.

1.5.2 Contributions to Practice

In this dissertation, I offer several contributions for practice. First, understanding of how CEO

background characteristics (e.g., CEO status, functional background, civic engagement, and education

level) can be applied to corporate philanthropy helps to explain the rationale behind decisions to engage

in corporate philanthropy. Therefore, I answer what leads CEOs to engage in corporate philanthropy and

further why some CEOs engage in more corporate philanthropy than others. Second, I provide managers

with practicability of corporate philanthropy. For example, strategic use of philanthropic expenditures

can support a community project in developing countries (Porter & Kramer, 2002; Sánchez, 2000)

because better community conditions are good for business (e.g., when the standard of living is

increased, product demand is increased).

Third, I provide managers with a promising notion that engaging in corporate philanthropy can

help firms with diversification and market entry strategies. Scholars argue that a firm’s philanthropic

engagement in developing countries can enhance the firm’s reputation and get easier access to the

market (Bohnsack, 2012; Brammer et al., 2006). There might be a positive relationship between

corporate philanthropy and international presence. In addition, it is suggested that corporate

philanthropy can offer an opportunity for internationally operating firms as well as for investing in

business legitimacy. In this dissertation, I can provide managers with practicability that international

firms can strengthen their competitive context by engaging in corporate philanthropy. Fourth, I provide

insights on business legitimacy by suggesting that firms are seen as legitimate actors by local

stakeholders to the extent they engage in corporate philanthropy. Goyal (2006) and Wang and Qian

(2011) suggest that philanthropic activities of multinational firms in the host countries would be a

signaling device to demonstrate that they have long-term intentions consistent with the local

expectations. Thus, I suggest that firms can receive supportive responses from the host countries

governments by engaging in corporate philanthropy.

1.6 Definition of Key Terms

Corporate social responsibility (CSR) refers to “context-specific organizational actions and

policies that take into account stakeholders’ expectations and the triple bottom line of economic, social,

and environmental performance” (Aguinis, 2011, p. 855).

Diversification refers to “the entry of a firm or business unit into new lines of activity, either by

processes of internal business development or acquisition, which entail changes in its administrative

structure, systems, and other management processes” (Ramanujam &

Varadarajan, 1989, p. 525). There are two types of diversification, such as related diversification and

unrelated diversification. Related diversification refers to a diversification built around a core

organizational capability (Ramanujam, 1987; Rumelt, 1982). It occurs when firms expand their areas

closely related to their primary activities and areas of technical expertise. Unrelated diversification refers

to a diversification that drives to move into unrelated lines of business (Ramanujam, 1987; Rumelt,

1982). It occurs where firms expand their operations into markets or products beyond current resources

and capabilities.

Corporate philanthropy refers to the practice of “giving firm resources to invest in business-

related issues and non-business community issues that also benefit the firm’s strategic position and,

ultimately, its bottom line” (Saiia et al., 2003, p. 170). This definition helps to explain why some firms

still donate in non-business areas more than others. They do so because they believe that giving non-

business issues would enhance their public image which can be used for gaining business legitimacy in

developing countries (Wang & Qian, 2011).

Global strategic posture (GSP) refers to “the degree to which a firm is dependent on foreign

sales and production and to the geographic dispersion of this dependence” (Carpenter, Sanders &

Gregersen, 2001, p. 497). It has been suggested that GSP reflects the relative significance of foreign

markets and operations in sustaining the firm as well as their geographic dispersion (Sullivan, 1994).

Therefore, GSP can be used for measuring firm internationalization (Carpenter & Fredrickson, 2001;

Levy, 2005). GSP are normally measured by three dimension originally developed by Sullivan (1994):

foreign sales, foreign production, and geographic diversity. Foreign sales reflect the relative significance

of foreign market. Foreign production reflects the degree to which a firm depends on foreign-owned

assets and resources. Geographic diversity reflects the extent to which a firm has subsidiaries associated

with globalization of operations and markets. Several scholars used GSP to explain a firm’s

internationalization strategy (Carpenter et al., 2001; Carpenter & Fredrickson, 2001; Levy, 2005).

1.7 Organization of the Dissertation

This dissertation consists of six chapters. The first chapter provides an introduction about the

importance of corporate philanthropy, statement of the problem, major research questions as well as the

contributions of the dissertation. Chapter two presents a comprehensive and extensive review of the

literature on corporate social responsibility and the antecedents and consequences of corporate

philanthropy with the role of leadership in corporate philanthropy. Chapter three presents the research

model, theoretical foundations, and summary of theoretically-driven hypotheses. Chapter four presents

the research design including target sample, measures, as well as statistical techniques. Chapter five

presents and highlights the results of statistical analyses, including summary of findings and summary of

hypotheses. Chapter six discusses the results from Chapter five, the implications to research and

practice, limitations, future research directions, and conclusion.

CHAPTER II

LITERATURE REVIEW

This chapter provides a comprehensive review of the corporate philanthropy research.

The first section begins with a systematic review of the literature on the relationship between Corporate

Social Responsibility (CSR) and firm performance as well as the leadership determinants of CSR. In the

second section, I discuss the theoretical conceptualizations of corporate philanthropy with a comparative

review of the traditional and strategic philanthropy literatures. In the third section, I discuss the

managerial, organizational and industry level antecedents and consequences of corporate philanthropy

with a particular emphasis on the link between leadership attributes and corporate philanthropy. In the

fourth section, I present a comprehensive review of research on the link between corporate philanthropy

and corporate strategy. The chapter then concludes with a contingency view of corporate philanthropy.

2.1 How Does Corporate Social Responsibility (CSR) Influence Firm Performance?

CSR refers to “context-specific organizational actions and policies that take into account

stakeholders’ expectations and the triple bottom line of economic, social, and environmental

performance” (Aguinis, 2011, p. 855). Specifically, the demand for business CSR initiatives has been

significantly higher around the world over the last several decades. Accordingly, firms nowadays are

expected to act more proactively to fulfill their CSR expectations as responsible corporate citizens to the

society (Wang & Hsu, 2011). Since engaging in CSR is considered a socially responsible investment for

the firm, how CSR influences firm performance has been an important issue among organizational

scholars (Agle, Mitchell & Sonnenfeld, 1999; Aguinis & Glavas, 2012; Orlitzky, Schmidt & Rynes,

2003). Even though there are some debates as to whether CSR helps to improve firm performance, an

extensive line of research has empirically explored how CSR boosts firms’ competitive advantage,

thereby ensuring value creation and satisfaction for stockholders and customers (Cox, Brammer &

Millington, 2004; Lev, Petrovits & Radhakrishnan, 2010).

The topic of whether CSR can have a positive effect on firm performance has generated

extensive discussions among scholars and practitioners. Friedman (1970) provides the classical

economic perspective that management has one responsibility and that is to maximize the profits of its

shareholders. Past research suggests that socially responsive firms incur higher direct costs and reap

lower profits than socially unresponsive firms (Aupperle, Carroll & Hatfield; 1985;

Devinney, 2009). In addition, some scholars have used agency theory that “good social performance

comes at the expense of good financial performance because social performance makes use of firm

resources in ways that confers significant managerial benefits rather than returning those resources to

shareholders” (Brammer & Millington, 2008, p. 1329). They argued that firms would better spend their

resources on value-added internal projects or return to shareholders rather than invest in CSR. Despite

these perspectives, there has been a growing institutional and societal pressure on businesses to pursue a

socially responsible operation for the last couple of decades and a number of institutional approaches

can explain this trend. Jones (1995) suggests that firms facing repeated transactions with stakeholders

based on trust and cooperation are encouraged to be honest, trustworthy, and ethical because they

believe that the returns to such behavior are high. In addition, a majority of empirical evidence suggests

a significant positive relationship between CSR and financial performance (Aguinis & Glavas, 2012;

Peloza, 2009). For example, Peloza (2009) reviewed 128 studies that explored the relationship between

CSR and financial outcomes and found that, almost 60 % showed a positive relationship, less than 15 %

a negative relationship and mixed findings from the rest of the studies. Recently, Aguinis and Glavas

(2012) summarized the overall empirical evidence on CSR-performance relationship in a wide range of

organizational fields as follows (p. 947):

“Working for socially responsible companies leads to increased organizational identification

(Carmeli, Gilat, & Waldman, 2007), employee engagement (Glavas

& Piderit, 2009), retention (Jones, 2010), organizational citizenship behavior (Lin,

Lyau, Tsai, Chen, & Chiu, 2010), employee commitment (Maignan, Ferrell & Hult, 1999),

employee creative involvement (Glavas & Piderit, 2009), and improved employee

relations (Glavas & Piderit, 2009).”

In the 21th century, the influence of CSR on a firm performance is an important concern to a

firm’s stakeholders so that firms should consider CSR as part of their strategies (Lantos, 2001). Given

the ultimate responsibility of firms meets the needs of stakeholders, firms should fulfil stakeholders’

demands while also devoting resources to CSR. Such seemingly contrasting demands are leading more

firms to embrace strategic CSR or strategic use of philanthropy. Carroll (2001), for instance, argues that

strategic CSR can accomplish strategic business goals, including good deeds, are believed to be good for

business as well as for society. Several scholars have discussed strategic aspects of CSR. Porter and

Kramer (2006) argue that CSR should be seen as one of core business strategies in a firm, indicating that

the firm can benefit from its social investment. Maignan et al. (2005) also argue that CSR can serve as

an attractive, valuable resource offering competitive advantage for enhancing business performance

because it can be used as a means of conducting business strategies.

2.1.1 What Role Do Organizational Leaders Play in Fostering CSR?

In an attempt to link organizational leaders (e.g., CEOs) to CSR, scholars have focused on three

aspects of CEO background characteristics: values, compensation levels, and personal attributes

(experiences). For example, CEO integrity can be relevant to CSR such that leader vision and integrity

will increase CSR values to shareholders. Waldman and Siegel (2008) argue that leader integrity to

personal morality can yield positive outcomes for business and may actually be the driver of CSR

strategies in organizations. Ketola (2006) also argues that leader integrity is an important component in

his or her successful promotion of CSR activities at the firm. In addition, the relationship between CEO

compensation and CSR has received some attention. For instance, McGuire, Dow and Argheyd (2003)

empirically examined the relationship between the level of CEO compensation and corporate social

performance (CSP) but they did not find any positive relation. However, Jiraporn and Chintrakarn

(2013) using a sample of 1,370 firms found that when the CEO power (as measured by the total

compensation) goes beyond a certain threshold, more powerful CEOs significantly reduce CSR

investments. Furthermore, several scholars examined the professional background of CEOs and

corporate social performance (Mazutis, 2014; Simerly, 2003; Thomas & Simerly, 1994). They found that

corporate social performance can be interpreted as a reflection of CEOs’ professional background.

Do organizational leaders play a role in promoting CSR? This question has long attracted

extensive research (Fabrizi, Mallin & Michelon, 2014; Jiraporn & Chintrakarn, 2013). As senior leaders,

CEOs and their top management teams are charged with the responsibility of formulating business and

sustainability strategy (Strand, 2013; Wood, 1991). Indeed, today’s corporate leaders play an important

role in pursuing an effective CSR agenda (Bielak, Bonini &

Oppenheim, 2007; Fabrizi et al., 2014;Godos-Díez, Fernández-Gago & Martínez-Campillo, 2011;

Mazutis, 2014). For example, CEOs engage in CSR related activities in response to growing pressures

from key stakeholders groups, such as customers and employees (Bielak et al., 2007). In addition, while

pressures from employees, customers, and other stakeholders can play a crucial role in CEOs’

willingness to engage in CSR, CEOs recognize that CSR can give their firms an opportunity to gain a

competitive advantage as well as address societal needs (Bielak et al., 2007). In addition, Godos-Díez et

al. (2011) using a sample of 149 CEOs found that those closer to the steward model are more inclined to

attach great importance to ethics and CSR, and to implement CSR practices. Fabrizi et al (2014) using a

sample of 597 U.S. firms extended the role of CEO’s incentives on CSR and found that non-monetary

incentives have a positive effect on CSR. Mazutis (2014) using a sample of 349 firms found the link

between CEO open executive orientation (such as a liberal worldview and output functional

experiences) and positive CSR initiative adoption over time. In this sense, it can be argued that the

relationship between leadership and CSR has become an important topic of research in the area of

leadership studies (Bielak et al., 2007; Godos-Díez et al., 2011; Fabrizi et al., 2014; Mazutis, 2014).

Transformational leadership helps represent the understanding of CSR in particular.

Transformational leadership is comprised of four major components (Avolio, Bass & Jung, 1999;

Bass & Riggio, 2006): (1) Idealized Influence (ability of leader to attract admiration and respect and

desire to follow from subordinates), (2) Inspirational Motivation (ability of leader to communicate clear

vision and create enthusiasm about future), (3) Intellectual Stimulation (ability of leader to encourage

creativity and unconventional and status quo-challenging problem-solving among followers), and (4)

Individual Consideration (ability of leader to accept individual differences and actively provide feedback

and interaction with followers).

Organizational scholars argue that transformational leadership has been found to influence CSR

behavior among some firms (Du, Swaen, Lindgreen & Senthat, 2013; McWilliams, Siegel & Wright,

2006).

McWilliams et al (2006), for instance, suggest that strategic leadership theory can be applied to

CSR and that transformational leadership will be positively correlated with the tendency of companies to

engage in CSR. They explored the degree of transformational leadership using CEOs of 112 large US

and Canadian firms and found that intellectual stimulation (which is one dimension of transformational

leadership components) was a predictor of the firm’s propensity to engage in strategically oriented CSR

that were more likely to be related to the firm’s corporate and business-level strategies (e.g.,

differentiation and reputation building). In addition, Du et al. (2013) in a survey of 440 U.S firms found

that firms with greater transformational leadership are more likely to engage in institutional CSR

practices, whereas transactional leadership is not associated with such practices. Furthermore, it has been

suggested that charismatic leadership with self-concepts of followers can be related to CSR. For

example, leaders have values and moral justifications which provide followers with motivational effects

such that charismatic leaders can help connect one’s identify with greater social causes (Shamir, House

& Arthur, 1993).

In conclusion, the empirical evidence on the relationship between CSR and firm performance

seems to be inconclusive (Peloza, 2009). However, more recent studies suggest that there is a positive

association between CSR and firm performance (Aguinis & Glavas, 2012; Chen & Wang, 2015). In

addition, since some firms consider CSR as part of their core corporate strategy and CEOs are

chargewith the responsibility of formulating corporate strategy, the relationship between leadership

characteristics and CSR is particularly important. Furthermore, it can be suggested that understanding of

three aspects of CEOs (values, compensation, and experiences) helps to link CEO background

characteristics and CSR. As mentioned in section 2.1.1, there is a certain interrelationship between

CEOs and CSR. Table 1 below provides an

2.2 Conceptualization of Corporate Philanthropy as a Dimension of CSR

Corporate philanthropy has traditionally focused on how a firm would voluntary allocate

its slack resources to charitable or social causes that are not typically business-related (Carroll,

1991; Wartick, Wood & Czinkota, 1998). Friedman (1970, p. 8) points out the problem of

corporate giving for the following statement and argues, “Firms operate under a moral mandate

to make as much money for the stakeholders as they can in order to solve problems that the

corporation did not cause.” He treats corporate giving as a waste of corporate resources. In

addition, several scholars have suggested that traditional philanthropic activities may not

purposely align with the strategic goals and resources of the organization (Marx, 1998, 1999;

McAlister & Ferrell, 2002). Notably, the traditional ways of corporate philanthropy have since

early 1990s shifted more dominantly towards strategically motivated giving, called strategic

philanthropy. For example, firms having a strong sense of CSR are turning away from traditional

giving and toward a more market-driven, strategic, and bottom-line approach to philanthropy

(Saiia et al., 2003). Given this phenomenon, there is a need to conceptualize corporate

philanthropy in a way that distinguishes traditional philanthropy from the strategic kind. In doing

so, I will focus on two areas. First, how was philanthropy viewed by businesses historically?

Second, how has this traditional view changed over time and become an integral part of business

operation – strategic philanthropy? Third, what are the benefits of corporate philanthropy?

Traditional philanthropy is different from strategic philanthropy in two ways. First,

traditional philanthropy is generally considered a non-strategic explanation of corporate giving

(Sharfman, 1994). It has the singular goal of helping others that may not be linked to corporate

interests so that it is considered independent from the operating pressures of generating profit

(Sánchez, 2000). On the other hand, strategic philanthropy involves the close alignment of