The double-edged sword effect of government-initiated CSR on organizational profitability: Moderating roles of slack resources and competition intensity

Abstract

This study aims to shed light on the bright and dark sides of government-initiated corporate social responsibility (CSR) on organizational profitability in emerging markets. Building on insights from agency theory, we investigate how a government-initiated campaign targeting poverty alleviation in China influences current profitability (i.e., financial performance) and potential profitability (i.e., innovation intensity) and further examine the moderating effects of slack resources and competition intensity. Based on a sample of 1,125 listed firms in China from 2016 to 2019, our study finds that government-initiated CSR promotes financial performance while decreasing innovation intensity. Moreover, the positive influence of government-initiated CSR on financial performance is weaker for firms with greater levels of slack resources. In addition, in fiercely competitive environments, the negative relationship between government-initiated CSR and innovation intensity becomes more adverse. By demonstrating the double-edged role of government-initiated CSR, our findings contribute to the CSR literature and provide managerial implications for executives.