A Conceptualization of How Firms Engage in Corporate Responsibility Based on Country Risk

Abstract

This conceptual article looks at corporate responsibility (CR) and country risk claiming that there is a relationship, and then positing the directionality of the relationship. An understanding of this relationship can help firms respond to a variety of pressures from organizations and this knowledge may help firms prevent negative media coverage with the need to “bolt” CR strategies on to existing corporate strategies. When firms have an understanding of how country risk affects them, they can plan entire clusters of CR initiatives to fulfill needs within the operating community. To understand the CR–country risk relationship, the authors build on Matten and Moon’s (2008) distinction between implicit and explicit CR. The first argument is that firms engage in no explicit CR (explicit CR that is voluntary and goes beyond legal requirement) when country risk is very high. As country risk lowers to high, firms engage in explicit CR, which creates little impact to the firm if CR must be withdrawn. The second argument is that as country risk shifts to moderate, firms commence to engage in high levels of explicit CR and low levels of implicit CR. The third argument concludes that when country risk shifts to low or very low, firms will engage in the least amount of explicit CR and the most amount of implicit CR. A set of three propositions develops these arguments.

Keywords

CSR corporate responsibility country risk CSR strategy

This article claims that there is a relationship between corporate responsibility (CR) and country risk, and that the relationship influences firm investment in CR. Another claim of the article is that explicit CR, the CR in which firms engage that is voluntary and goes beyond legal requirements (Matten & Moon, 2008), has a positive correlation with country risk. The positive correlation begins when country risk is moderate, a positive correlation with country risk beginning at moderate levels of country risk. An increased investment in explicit CR at moderate levels of country risk would occur because when country risk is high or very high, the risk may severely limit or prevent firm engagement in explicit CR. When country risk is moderate, firms may engage in the greatest amount of voluntary CR out of all the levels of country risk. Firm engagement in explicit CR, under conditions of decreasing country risk, lowers as country risk becomes low. Conversely, implicit CR, that CR which is required by governments and other national institutions for firms to engage in (Matten & Moon, 2008), has a negative correlation with country risk. The higher the risk, the lower the emphasis on implicit CR (which while limited, does not disappear at very high risk).

CR is “a cluster of a firm’s policies, programs, and outcomes that are beyond the requirements of extant law” (Griffin & Prakash, 2010, p. 170). CR initiatives, according to Griffin and Prakash, should remain voluntary and will include programs and initiatives that go beyond legal requirements. Examples of CR include philanthropic donations, volunteering in the community, employee benefits, and environmental improvements (Griffin & Prakash, 2010). Additionally, these voluntary CR initiatives will vary by the context and the institutional settings in which firms find themselves (Griffin & Prakash, 2010; Matten & Moon, 2008).

A set of three propositions stems from Matten and Moon’s (2008) work on implicit and explicit CSR because these two types of CSR are based in institutional theory. Their work on implicit and explicit CSR helps to explain why CR initiatives vary from country to country. This work differs from that of Matten and Moon by extending their conceptualizations with aggregate country risk (political, financial, and economic). The introduction of country risk sheds light on the type (explicit or implicit) of CR firms can expect to engage in when investing in international CR initiatives. Support for the discussion of country risk is found in the use of the International Country Risk Guide (ICRG) index (Political Risk Services Group, 2008) because it is easy to understand and inexpensive to obtain. Even though the country risk literature claims that aggregated country risk indices are not always reliable (Click, 2005), they remain a reasonable source of information for firms who want to strategize, implement, and engage in CR in different countries. Additionally, while many readers might believe that previous literature has addressed the relationship of country risk and CR, a search of the literature finds that previous studies focus predominantly on the political country risk dimensions as opposed to aggregate country risk (Godfrey, Merrill, &Hansen, 2009; Luo, 2006).

A search of the extant literature indicates that little is known about the relationship between aggregate country risk and CR. In this article, the aim is to focus on the country level of analysis that affects all firms. In general, country risk can serve as a signaling mechanism for all firms regarding how to strategize, implement, and engage in CR. In particular, knowledge of aggregated country risk, and its relationship to CR, would be important for small and medium size firms that are making their initial attempts to internationalize. Smaller firms often have little funds for extensive risk research; thus, country risk indices help to provide risk information for all firms that wish to develop strategic CR responses for riskier markets. Country risk studies continue to be important as more firms internationalize their operations and especially because Western multinationals expect to find 70% of their growth in emerging markets (Eyring, Johnson, & Nair, 2011). Country risk can serve as a signaling mechanism that provides firms with information about what type of CR initiatives they might initially engage in when investing internationally. Signaling theory suggests that the transfer of information to other parties is important to resolve information asymmetries (Spence, 1973), and in the case of country risk, the information asymmetries arise from the unobserved information content of a country and its institutions (Click, 2005).

When country risk is very high, or high, firms receive a signal that they should either not invest in CR as in the case of very high country risk, or, at best, limit their CR investments as in the case if high country risk. Under high or very high country risk conditions, investments in CR will not create value for the firm because results could be negative, if not disastrous, due to country instabilities (Hopkins, 2007). As country risk shifts from high to moderate, firms will want to engage in more explicit CR at moderate country risk levels in order to create solutions for their firms in their surrounding society and where governments do not have the ability to act. Under moderately risky conditions, firms that create and engage in voluntary CR initiatives firms create “insurance-like” benefits and improve firm value (Campbell, 2007; Godfrey et al., 2009, p. 425). Country risk as a signal is important to firms as country risk reaches low and very low levels, it signals a strengthening of institutions, and firms will do two things under low levels of country risk. First, they will continue to engage in explicit CR, but at lower levels than if they were in a moderately risky country. Second, increased institutional strength requires firms to engage in CR based on the norms, values, codes, and regulations of national institutions; thus, firms will engage in ever-increasing implicit CR initiatives due to increased institutional strength. As firms receive the country risk signal, they will, in turn, engage in CR initiatives that signal their values to stakeholders.

Under conditions of moderate risk, firms will want to signal stakeholders that they choose to be responsible regarding all aspects of their business engagements. Signaling theory suggests that the transfer of information to other parties is important to resolve information asymmetries (Spence, 1973), and it is important for firms to signal their voluntary responsibilities in riskier countries when there is a deficit of governmental social regulations—firms want stakeholders to know that they are being proactive to prevent sanctioning. Firms that engage in CR signal for a variety of reasons. When firms signal their corporate responsibility policies, they attract employees with similar values (Greening & Turban, 2000; Turban & Greening, 1997). Additionally, firms that signal their environmentally focused intentions, have employees who are more willing to engage in environmental initiatives (Aguilera, Rupp, Williams, & Ganapathi, 2007). Finally, Aguilera et al. note that firms that engage in and announce their CR initiatives are attempting to increase shareholder value, and improve competitiveness of their firms.

The remainder of the article follows in four additional sections. The next (second) section reviews the definition of CR, underscoring the fact that there are several definitions of what CR means. In a review of the CR literature, the foundation of this article lies within the work of corporate social responsibility (CSR). The ideas of CSR and CR are closely related, but as Griffin and Prakash (2010) note CR goes beyond just social initiatives and encompasses an entire cluster of corporate responsibilities. In order to help alleviate confusion, the definition of CSR/CR used by each reviewed author(s) is used throughout the literature review switching to CR in the argument and propositions section. The third section of the article defines and discusses aggregated country risk ratings and provides a short review of the role of political, economic, and financial country risk. This section discusses the basics of country risk ratings and their usefulness for firm planning. The fourth section advances the argument that there is a positive relationship between explicit CR and country risk, and an inverse relationship between implicit CR and country risk. The discussion revolves around the relationship between three main levels of country risk (high, moderate, low) and CR. In the final section, the possibilities for future directions in this line of research are reviewed along with the limitations to the study of the relationship of CR and country risk, and then the article concludes.

Corporate Responsibility (CR)

This section briefly reviews the CSR/CR literature used to advance the propositions, and then leads up to the work of Matten and Moon (2008) where the article adapts their definitions of social responsibility for the developed propositions. A brief summary of the literature used to advance the propositions follows. CSR is defined as business actions that consist of ethical, legal, economic, and discretionary (voluntary) actions (Carroll, 1979; Maignan, 2001), and in most cases, the definition of CSR focuses on a firm’s voluntary actions within their community (Montiel, 2008). There is a well-developed body of CSR literature that attempts to link CSR and firm performance (McWilliams & Siegel, 2001; Seifert, Morris, & Bartkus, 2004; Sharp & Zaidman, 2010), as well as literature that addresses issues from the moral/ethical perspective (Graafland & van de Ven, 2006; Nussbaum, 2009). Additionally, the CSR literature describes how society and its institutions influence the development of CSR (Campbell, 2007; Matten & Moon, 2005, 2008). Furthermore, several authors note that the CSR literature continues to debate whether or not firms should engage in CSR that aligns with their core business (Garriga & Melé, 2004; Porter & Kramer, 2002) or if they should engage in noncore business initiatives. Finally, the CSR literature continues to focus on a variety of issues about firm participation in voluntary efforts to help fulfill basic human needs such as building schools and hospitals, enabling economic development, contributing to public health programs, and others (Baskin, 2006; Valente & Crane, 2010; Visser, 2008).

How the literature defines CSR/CR varies greatly. One author, Maak (2008, p. 353), tells us CSR is a much “tortured” concept that remains a broad umbrella for areas like business ethics and corporate citizenship. Most authors define CSR as the economic, legal, ethical, and discretionary practices that firms engage in (Carroll, 1979, p. 499) to support stakeholder interests. Carroll writes that the first socially responsible activity that firms must engage in is the economic activity of fulfilling their mission to shareholders. Next, firms must fulfill all legal requirements in order to meet the demands of most governmental organizations. Firms fulfill ethics by being ethical in their business on a routine basis (Maignan, 2001; Ulrich & Thielemann, 1993) and firms must fulfill those after meeting legal and economic requirements. Finally, discretionary (voluntary) activities include any activities that firms engage in that go beyond economic, legal, and ethical requirements to help fill gaps within a community or society (Matten & Moon, 2004; Valente & Crane, 2010). Griffin and Prakash (2010) state that CR initiatives include corporate strategies, actors, institutions, managerial issues, and an attempt at how and why corporations choose to engage in CR. Because CR is driven by economic, legal, and ethical requirements, the understanding of how and why firms engage in voluntary and strategic CR mechanisms is important for various reasons.

Among the chief reasons for continuing to understand CR initiatives and what prompts corporations to behave responsibly, would be the outcomes of the recent failures of the global banking system, and other related failures (Basu & Palazzo, 2008). These failures and breaches of society’s trust and expectations continue to raise a public outcry for more CR (Schwarzkopf, 2009). Maak (2008) writes that CR should be termed as corporate integrity. Corporate integrity is the alignment of firm strategy and stakeholder business and societal interests by engaging in commitment, conduct, content, context, consistency, coherence, and continuity of policies. Many researchers believe that firms who engage in CR must start to view CR choice as a strategic necessity rather than an optional add-on to the main business strategy (Basu & Palazzo, 2008; Galbreath, 2009; Porter & Kramer, 2006; Sharp & Zaidman, 2010). By weaving CR into business strategies, firms may help avert future scandals and institutional collapses (Basu & Palazzo, 2008; Galbreath, 2009; Sharp & Zaidman, 2010). Further, regular news reports indicate that as federal governments continue to bail out financial institutions and major national manufacturers, that many governments cannot attend to the needs of society in areas of jobs, food stamps, child care, and medical care (Basu & Palazzo, 2008; Schwarzkopf, 2009). There are still several concerns that firms might engage in CR as a public relations mechanism rather for the firm’s overall sustainability; thereby, reducing the positive impact to the community and confusing stakeholders about what a firm’s values in its business dealings (Frankental, 2001; Galbreath, 2009; Tencati, Perrini, & Pogutz, 2004). Finally, much research indicates that managerial influence and discretion play a large part in CR choices (Buchholtz, Amason, & Rutherford, 1999; Hemingway & Maclagan, 2004; Maignan & Ferrell, 2000; Zadek, 2004). As a result, unless properly disclosed managerial discretion may appear irrational and might leave firms at risk for accusations of inappropriate expropriation of shareholder wealth. Overall, firms will choose to engage in voluntary CR based on their strategic focus, aversion to scandal, and bad press and other reasons.

Implicit CSR and Explicit CSR

As previously noted, several authors claim that CR is a concept that is not easy to define and that it has a variety of synonyms, meaning different things to different people, and is an umbrella term for different ideas that deal with business and society issues (Campbell, 2007; Lee, 2008; Maak, 2008; Matten & Moon, 2008). While the CSR definition set out by Carroll (1979) is the most popular (Montiel, 2008), Matten and Moon state that CSR “consists of clearly communicated policies and practices of corporations which reflect business responsibility for some of the wider societal good” (Matten & Moon, 2008, p. 405). Matten and Moon claim that, in addition to explicit CSR, which generally consists of voluntary CSR practices that help meet shareholder expectations, there is a second type known as implicit CSR. Implicit CSR is comprised of mandated or codified practices that receive legitimacy through the values, norms, and beliefs of society and embedded in national institutions. A review of both their concepts of implicit and explicit CSR is next.

Implicit CSR, as in Table 1, “consists of values, norms, and rules that result in (mandatory and codified) requirements” that firms must follow. Implicit CSR is “motivated by societal consensus on the legitimate expectations” (Matten & Moon, 2008, p. 410) of the responsibilities and roles that groups, and firms will follow. Matten and Moon define explicit CSR, which is generally considered as voluntary, as the corporate policies that “assume and articulate responsibility for some societal interests” (p. 409) and, which attempt to meet the expectations of their stakeholders. Some examples include certifiable CSR standards such as ISO 14001 or corporate environmental policy statements (Ramus & Montíel, 2005). They state that the discretionary decision to choose and engage in CSR is influenced by the established institutions as well as isomorphic pressures within a country.

Table 1.

Explicit and Implicit Corporate Social Responsibility (CSR).

Explicit CSR	Implicit CSR
Describes all corporate activities to assume responsibility in society.	Describes all formal and informal institutions of a society, which assigns and defines the extent of corporate responsibility for the interests of an entire society.
Consists of voluntary corporate polices, programs, and strategies.	Consists of values, norms, and rules, which result in (chiefly coded and mandatory requirements for corporations).
Motivated by the perceived expectations of all stakeholders of the corporation.	Motivated by the societal consensus on the legitimate expectations toward the role and contribution of all major groups in society, including corporations.

Source: (Adapted from Matten and Moon, 2008)

Matten and Moon (2008) describe institutions as the foundation for how implicit and explicit CSR is shaped. They write that institutions consist of “formal organization of government and corporations” (p. 405) that shape the “norms, incentives, and rules” (p. 406) of a particular country. Formal country institutions maintain a stronger influence on corporations by using regulatory initiatives (e.g., Sarbanes Oxley Act 2002) and strong enforcement. As an example, Campbell (2007) notes that in many industries, when regulatory institutional strength increases, companies are more likely to engage in more social responsibility, of any type because of increased regulations (e.g., meat packers). He also notes, that under conditions of deregulation, which can decrease institutional strength, firms will engage in less social responsibility as evidenced by Enron and the more recent financial crisis of 2007/2008 to present. Implicit and explicit CR tells why CR varies by each country. Country risk influences how firms implement explicit or implicit CR and the discussion moves forward to the review of CR literature pertinent to the discussion of country risk.

Under conditions of very high or high country risk, firms may not engage in CR because they may find their country settings are not stable enough to protect significant foreign direct investments. There appears to be a dearth of literature about CR investments in high or very high risk countries and what little exists, lacks optimism (Hopkins, 2007; Naeem & Welford, 2009). In his writings, Hopkins discusses countries such as Somalia that the International Country Risk Guide (ICRG) has rated as being very high risk. He suggests that while firms attempt to do what is right by helping with societal issues, that the instability of a country will prevent firms from having successful CR projects. While there may be little literature to describe firm engagement in CR in countries rated as very high risk or high risk by the ICRG, there is a significant amount of literature regarding CR in emerging markets. A review of the emerging market literature finds that many of the countries labeled in the literature as emerging markets, or developing countries, fall into the ICRG’s moderate country risk category, and an overview of that literature is next.

This research draws on the work of Baskin (2006) and Visser (2008) to describe CR emerging markets that can be classified countries with moderate risk. When the ICRG rates emerging markets as displaying moderate country risk, firms might engage in voluntary CR for several reasons such as reducing censorship from shareholders and stakeholders, making restitution for inappropriate or harmful behavior, avoiding governmental regulation, reducing negative press, or managing corporate image (Campbell, 2007). Additionally, there is evidence that suggests that engagement in CR in emerging markets may be a strategic alternative to achieving an increased level of competitive advantage (Baskin, 2006; Visser, 2008). As to competitive investments in CR under any country risk conditions, firms may choose to engage in CR to improve individual corporate economic success, strengthen, government and industry regulation, or to moderate competiveness (Campbell, 2007). In some cases, firms may voluntarily take on some types of government responsibilities to help shape the socioeconomic landscape and create a business friendly environment (Visser, 2008). Firms may engage in CR in order to prevent censorship, stakeholder criticisms, and negative media reports, and improve firm reputation. Additionally, firms may choose to engage in CR because it is the right thing to do for their firm and their communities as it helps to meet the expectations of stakeholders (Campbell, 2007; Matten & Moon, 2008). The literature tells us that there are many reasons for firms to engage in CR, and the next section reviews country risk, which also influences the choice of CR.

Defining Country Risk and its Components

Country risk refers to the investment risk encountered across borders and is generally comprised of political, economic, and financial risk dimensions (Erb, Harvey, & Viskanta, 1996; Hoti & McAleer, 2004; Nordal, 2001; Oetzel, Bettis, & Zenner, 2001; van Wyk, Dahmer, & Custy, 2004; Verma & Soydemir, 2006). In other terms, country risk has been defined as the risk that a sovereign borrower will default on its debts (Cosset & Roy, 1991). Additionally, Schroeder (2008) states that country risk is not only about how sovereign borrowers will fulfill their debt service, but includes whether or not a sovereign has “enough foreign exchange on hand to transmit earnings to foreign creditors” (Schroeder, 2008, p. 504). Country risk affects all firms and country risk ratings are one tool to help facilitate firm decisions about how to invest.

Primarily, country risk affects shareholder investments (Bansal & Clelland, 2004; Clarke & Varma, 1999; Cosset & Roy, 1991; Hoti & McAleer, 2004; March & Shapira, 1987; Miller & Bromiley, 1990; Rodríguez & LeMaster, 2007). Additionally, country risk affects corporate performance (Erb et al., 1996; Miller & Bromiley, 1990), and asset depreciations (Feinberg & Gupta, 2009). Country risk is known to affect manager perceptions, and attitudes that subsequently affect strategic management choices (Bansal & Clelland, 2004; March & Shapira, 1987; Sitkin & Weingart, 1995; van Wyk et al., 2004). Further, country risk affects stakeholders such as customers, suppliers, debtors, and creditors (Clarke & Varma, 1999; Merna & Al-Thani, 2005; van Wyk et al., 2004). Moreover, country risk is a major determinant in forming international competitive strategies (Nordal, 2001; Robock, 1971) and often influences modes of entry (Dacin, Hitt, & Levitas, 1997; Feinberg & Gupta, 2009; Robock, 1971). Finally, country risk is important because perceptions about country risk influence supply and cost of capital flow (Hoti & McAleer, 2004).

Schroeder (2008) notes that sovereign credit ratings date back to the 1800s and that cross-border lending risks date back to as far as 4 BC. Country risk began originally as the ability of sovereign nations to pay their debts and Schroeder (2008) provides a useful compendium of country risk assessments. She writes that early raters such as Dun and Bradstreet, which was established under the name “Mercantile Agency” in 1841, and Moody’s, which was established in 1900, began issuing sovereign ratings to help lenders determine creditworthiness of foreign borrowers. Foreign lending accelerated during the 1920s up to the stock market crash in 1929. In 1931, governments such as Bolivia, Brazil, Chile, Colombia, Peru, and others defaulted on their debt payments in attempts to improve their economies. Schroder writes that during World War II, for the most part, sovereign credit ratings ceased, except for countries such as the United States, Canada, and some South American countries. Post-World-War-II, lending to countries that defaulted in the prewar days resumed, and by the 1950s, funding to developing nations started to increase. The reprisal of country risk ratings began again after World War II when investment lending passed from government to the commercial sector. The 1970s led to increased international debt among less developed countries with a subsequent rise in those countries inability to pay or service that debt increasing the need for country risk assessments (Hoti & McAleer, 2004). The inability upon default meant that lenders needed a way in which to assess country performance and management, which led to the establishment of formalized country risk definitions and assessments. To this point, country risk dealt mainly with financial indicators such as default risk, debt service, balance of payments, exports relative to GDP, and others. During the 1970s, the political turmoil in Iran highlighted the need to assess political regimes prior to investing in foreign countries.

It is at this juncture that political risk enters into country risk assessments as a third dimension to complement financial and economic risk. Aggregated country risk assesses the interdependent factors of economic, financial, and political dimensions associated with specific countries. Political risk interacts with economic and financial risk and the policies or decisions that affect economic and financial dimensions are often the result of political decisions that result in economic or financial actions (Robock, 1971).

Political risk is defined as the “actions that governments can take in the event of a balance of payments problem, besides default or rescheduling” (Schroeder, 2008, p. 504) and those actions may be the result of political decisions. Some actions might include restriction on labor or financial markets, property rights and ownership, expropriation, and others. While Schroeder presents an overview of political risk and its relation to country risk assessments, Robock (1971) examined how political risk might be forecasted and how it affects business decisions.

According to Robock (1971), political risk exists “(i) when discontinuities occur in the business environment, (ii) when they are difficult to anticipate and (iii) when they result from political change” (Robock, 1971, p. 7). Political risk includes both macrorisks (those that affect all firms in a country) and microbusiness risks (risks affecting only specific businesses; Al Khattab, Anchor, & Davies, 2008; Robock, 1971). He specifically writes that political decisions that do not change the “business environment significantly do not represent political risk for international business” (p. 8) and that political decisions may create political risk for one firm, but not another. It follows, then, that where government policies change gradually that political risk is easy to anticipate. Additionally, Robock’s distinction regarding macropolitical risk and micropolitical risk states that while macropolitical risk generally affects all firms in a country, specific firms maybe be able to mitigate their firm-specific or micropolitical risk, by customizing a response to the specific perceived threat in order to continue operations.

As an example, the ongoing global financial crisis is an example of how political risks are not always a revolution or upheaval in regimes; thus, as Robock suggests, political risk assessments vary based on the perspective from which they are defined. Robock states that political risk sources to consider include philosophical changes in government, social unrest, and rebellion such as weak law enforcement that prevents disruptions of business, confiscation, and expropriation of businesses, unilateral acts such as the sudden changes in contracts. Overall, political risk often influences economic and financial risks causing firms to determine the best strategic response to that risk (Robock, 1971).

Economic risk, according to the ICRG, consists of inflation, debt service as a percent to of exports of goods and services, parallel foreign exchange rates, and the like (Political Risk Services Group, 2008). Financial risk can be considered as the risk of delayed payment of supplier’s credit, the repudiation of contracts by governments, losses from exchange controls, or such as loan default or unfavorable loan restructuring (Political Risk Services Group, 2008). Economic and financial risks include reduced or deteriorating terms of trade, increased production costs, increased energy prices, unproductive investments in foreign funds, and general constraints to the free flow of capital into and out of a country.

This work focuses on the country level of analysis, and the work uses aggregated country risk as it relates to CR, because it can affect perceptions and responses regarding all firms operating in a country business environment. While country risk indices are considered readily available (Nordal, 2001; Oetzel et al., 2001), there are some issues with using aggregated country risk. Several authors such as Cosset and Roy (1991), Oetzel et al. (2001), and others find that the information used to develop the ratings is “dubious” Click (2005, p. 561). This dubiousness appears to arise for two reasons. First, there is a concern about the subjectiveness of rating institution choices of factors and methodologies used to assess country risk (Click, 2005; Schroeder, 2008), which may give rise to rater bias. Secondly, due to the structure of the methodologies, there is an issue with correlation of political risk and aggregated country risk, which is described next.

The business magazine Institutional Investor (II) is an interesting example of the potential for subjectivity in ratings. The index credit ratings rely on the report of 100 leading international bankers who subjectively rate countries credit worthiness from 0 to 100 (Cosset & Roy, 1991; Erb et al., 1996). The factors that these bankers evaluate include economic outlook, debt service, financial reserves, current account, fiscal policy, political outlook, access to capital markets, trade balance, inflow of portfolio investment, and foreign direct investment (Erb et al., 1996). Erb et al. (1996) find that the ICRG variables differ from the II variables, with the ICRG variables including more detailed analysis of political risk. They also find that many countries begin with a high-risk ICRG rating (e.g., Argentina) that lowers over time to a less risky rating. This progression may be due improvement in economic and financial conditions as well as improved political structures and stability. One important note is that countries (e.g., Sweden) with low country risk ratings may deteriorate over time due to changes in economic, financial, and political outlooks where political outlooks remain subjective leading to rater bias. This possibility leads to the second concern that the ICRG political risk and composite risk scores are correlated.

Click’s (2005) article investigates how financial and political risk affects United States foreign direct investment. He states that political risk is the unobserved risk that affects investment decisions and he finds that whenever a commercial country risk rating upgrades a country risk rating (e.g., Institutional Investor and Euromoney), there is a corresponding increase in Return on Assets (ROA). Click finds that there is an increase in ROA for the ICRG economic and financial components, whereas, the change in the political rating has no effect. While Erb et al. (1996) find that the ICRG’s cross-correlation of political, economic, and financial factors is 35%, Click (2005) finds that ICRG political risk is highly correlated with IRCG economic/financial risk at 83%. This high correlation leads Click (2005, p. 569) to state that there is “information content beyond the country’s growth and exchange rate changes,” which is more likely political rather than financial. More importantly, when using the ICRG ratings, it helps to understand that the ICRG views political risk as being at least 50% of the weight of their ratings while financial and economic risks are weighted at 25% of the total (see Erb et al., 1996; Nordal, 2001; Oetzel et al., 2001; Political Risk Services Group, 2008).

Overall, these studies highlight that country risk ratings need to be used with care because of their subjectivity; yet, it is possible that they can provide insight into how firms can plan broadly, at the country level, and strategize their CR responses to country risk levels. Additionally, it must be acknowledged that political, economic, and financial country risk are important as separate dimensions, and may affect CR investments differently. In some cases, reducing exposure to political risk may be more motivation for firms to engage in explicit CR. The consideration of how the separate dimensions of country risk might affect the choice of CR is set aside, saving it as a topic for future research in order to explore The following arguments rely on the ICRG’s ratings, not because they are necessarily accurate, but because they provide a helpful starting point for explaining how country risk might impact the choice of firm CR.

Propositions

Figures 1 and 2 depict the relationship between explicit and implicit engagement in CR and country risk. Aggregated country risk creates an investment signal that helps guide firms with their international investments. Specifically, the models help firms understand the expected level of CR investment and the direction of CR investment when considering international investments. The models indicate that investment in explicit CR commences in greater quantity when countries reach a moderate country risk level. Figure 1 depicts the idea that firms will not engage in CR under very high country risk conditions as institutional strength is absent in market mechanisms. Similarly, firms will engage in explicit CR, under high-risk country risk conditions, only if there is a way to withdraw should risk become too high. When country risk is moderate, firms commence engagement in CR. As country risk lowers, firm investment in explicit CR will decrease because institutional strength increases requiring firms to participate in more implicit CR.

Figure 1.

How country risk influences the engagement in explicit corporate responsibility.

Figure 2.

Firms’ engagement in implicit and explicit corporate responsibility based on country risk.

Figure 2 illustrates that there is a positive relationship between moderate to very low country risk and explicit CR and an inverse relationship between country risk and implicit CR. The model shows that as country risk shifts to moderate risk, firms engage in the highest levels of explicit CR and lowest levels of implicit CR in order to provide services that emerging market institutions cannot provide. Examples of explicit CR that firms engage in under moderate country risk conditions include extensive investments in education and healthcare, increased involvement in voluntary reporting of social investments, maintaining cultural traditions of helping others in society, desires to overcome wage inequity, and influence political reforms (Baskin, 2006; Campbell, 2007; Visser, 2008).

As the model indicates, when country risk shifts from moderate risk to low and very low country risk, explicit CR decreases and implicit CR increases. This shift in country risk signals to firms that institutions are strengthening. These stronger institutions require firms to engage in greater levels of firm participation in implicit CR and less investment in explicit CR because of improved civil society and market institutions. Examples of implicit CR include firm support for improved access to public education and healthcare, firm support of increased regulation in matters of public and social concerns, and participation in financial reformation such as the 2002 Sarbanes Oxley Act (Matten & Moon, 2008). Having explained the model and the directionality of CR initiatives as they relate to country risk, the next section provides further support for the propositions.

CR and High Country Risk

Countries rated as high or as very high risk, display attributes such as low government stability, unstable socioeconomic conditions, corruption, and religious tensions (Political Risk Services Group, 2008) that prevent the development of rules and regulations based on the values, and norms of institutions. As of 10 December 2010, the ICRG classified ten countries as the worst performers based on risk, because they exhibit very high country risk (0-49.5 of 100) environments (Political Risk Services Group, 2010). The list includes Somalia, Zimbabwe, Congo DR, Sudan, Iraq, Guinea, Nigeria, Myanmar, Pakistan, and Haiti. Examples of high risk countries include Ethiopia, Liberia, Guyana, Malawi, Bolivia, and Cuba.

A review of scholarly literature leads the authors to believe that there is little research regarding CR in countries rated by the ICRG as very high or high risk. One way that firms might employ CR initiatives in high-risk countries, without negative firm impact, is to implement codes of conduct. Lund-Thomsen (2004) writes that codes of conduct allow firms to incorporate strategic CR into business processes. In his study concerning the high-risk country of Pakistan, he claims that voluntary codes of conduct in the Pakistani tannery industry might help rectify pollution, labor abuses, and other issues that do not have a broad base of publicly supported activism. Lund-Thompson is not overly optimistic in his evaluation of CR in Pakistan because without strong governmental support and a framework for enforcing regulations, firm performance in areas like pollution and labor rights, firms will still take the path of least resistance. Hopkins (2007) also suggests that the extant literature remains pessimistic regarding CR in emerging market countries rated as high risk by the ICRG. He reflects briefly on the failed case of the hospital built by Coca-Cola in Somalia. The hospital failed because the medical infrastructure was not well developed or supported by the government or the community. The hospital was eventually ransacked, and finally, it was converted into slum housing (Hopkins, 2007). Another case of failure of CR in high-risk country conditions, Shell Oil, which began oil-drilling operations in Nigeria in the 1960s under conditions of high risk, when faced with high civil unrest, temporarily shut down. When the operating environment proved unstable due to civil unrest, Shell withdrew until they could restart their operations under less risky conditions (Bird, 2004). While these reports are anecdotal in nature, they surmise that CR investments in very high risk environments are unwise.

Firms choosing to invest in high-risk countries will do so to take advantage of missing or weak market systems. Under high or very high risk conditions, firms will want to retain their ability to withdraw their investments in unstable situations by selling off assets to insulate themselves against risk. Additionally, in order to compensate for country instabilities, firms will collateralize assets to obtain host country loans, and then firms can loan the money borrowed from the host country back to the parent creating a form of reverse foreign direct investment (FDI; Loungani & Razin, 2001). The ability of firms to take advantage of reverse FDI opportunities implies that firms are investing in the short term, whereas authors such as Porter and Kramer (2006) and Bird (2004) recommend that firm investment in CR should be long-term. When firms invest in high-risk countries in the short term, investing in CR, their investment may be counterproductive, as the costs of CR investments would outweigh the benefits. Scholarly reporting on CR in high-risk emerging markets is scant or anecdotal, yet country risk levels can still signal to firms that they should not to engage in CR initiatives in high-risk countries. Should firms choose to engage in a CR investment, the investment should be nominal (i.e., codes of conduct) as it could end in failure and cost the firm more money than originally intended and the following are proposed:

Proposition 1a: When country risk is very high, firms will not invest in CR.

Proposition 1b: When country risk is high, firms will limit their investments in CR as much as possible to prevent failure.

CR and Moderate Country Risk

The scholarly reporting of engagement in voluntary/explicit CR activities (see Baskin, 2006; Valente & Crane, 2010; Visser, 2008) increases when countries are termed as emerging markets or developing economies. Because many emerging markets are rated by the ICRG as moderate, one may deduce that the emerging market literature is reflective of firm engagement in CR under moderately risk conditions. Baskin (2006) focuses on CR engagement in areas such as Latin America, Africa, and Eastern Europe where many countries, such as Argentina, Brazil, Mexico, Peru, Zambia, Turkey, Armenia, Tanzania, Jordan, India, Greece, Jamaica, Israel, and many others fall into the ICRG’s moderate rating as of June 2008 (Political Risk Services Group, 2008). Baskin finds in his study that 68.5% of emerging market corporations will invest in voluntary social investments, which is nearly as much as companies reporting voluntary social investment (72.8%) that are located in Organization for Economic Co-Operation and Development (OECD) countries. Additionally, he finds that emerging market corporations report more involvement (50.4%) in a broad (or extensive) range of projects that include investing in such as education, healthcare, and a variety of other issues. Contrarily, he finds less reporting of extensive social investment (36.4%) in reporting OECD companies.

Visser (2008) reviews voluntary CR in moderate risk countries such as South Africa, India, Indonesia, and regions such as Latin America, Africa, and Asia and finds reporting results similar to Baskin’s findings. Sustainable practices are well published among Latin American companies with Visser finding that 34% of top companies voluntarily report their sustainability information. In Brazil, Visser (2008) finds Brazilian companies are high reporters of sustainable activities. Brazilian firms disclose their sustainable investments about 43% of the time. He also notes that in Latin America, where many moderately risky countries exist, that there are small and medium enterprises that engage in voluntary CR and those smaller firms willingly disclose their voluntary CR activities.

Matten and Moon’s (2008) definition of explicit CR includes voluntary firm engagement in the assumption of societal responsibility motivated by stakeholder perceptions. Firms in emerging, moderately risky markets engage in explicit CR to signal their social commitments and because it is necessary to maintain good relationships, as well as to promote sound business practices (Visser, 2008). Another reason is that firms will perceive that there is external pressure from various stakeholder groups such as activist organizations, shareholders, the media, consumers, and others (Campbell, 2007). These initiatives create value for firms as they help to mitigate unforeseen negative events (Godfrey et al., 2009). Engaging in CR helps firms maintain or improve its reputation (Yoon, Gürhan-Canli, & Schwarz, 2006), and potentially reduces firm-specific business risks (Orlitzky & Benjamin, 2001). Another reason firms invest in explicit CR in moderately risky countries is that weak political or civil institutions prevent implementation, enforcement, and codification of social norms and values that create and support institutional change. Additionally, these moderately risky governments may feel pressured to relax environmental, labor, or other standards in order to attract and maintain relationships with large multinational companies. Many multinationals will want to engage in explicit CR to continue to side step regulators (Campbell, 2007) and to put downward pressure on governments not to legislate in the best interest of their people (Scherer & Smid, 2000).

Investing in explicit CR, in moderately risky environments, provides firms a wide array of areas in which to invest in social initiatives. Contrariwise, in lower risk countries, firms perceive that the governments, traditionally charged with executing social policy and benefits, provide adequate social welfare subsequently. The assumption of social programs by governments eventually relieves firms from assuming voluntary social responsibilities. In general, when firms engage in explicit CR in moderately risky countries, they create a better environment for their firms and the communities.

Based on the writings of Baskin (2006), Campbell (2007), and Visser (2008), explicit CR appears to be implemented more often when country risk is moderate than when country risk is lower as governments implement fewer rules and regulations, such as environmental, safety, employee, and others, based on the values of their institutional framework. Matten and Moon (2008) allude to this when they acknowledge that firms in countries perceived as “bottom of the pyramid” (Prahalad, 2005) assume more responsibility when governments remain unable to provide social services. As previously noted, firms in higher risk countries will more often engage in explicit CR to prevent censorship from activists, gain shareholder and/or customer support, reduce negative press, manage corporate image, and create restitution for past harmful behavior (Campbell, 2007). At moderate country risk levels, it may be beneficial for firms to engage in more explicit forms of CR because it will help the firm acquire an insurance benefit that minimizes business or political risk (Godfrey et al., 2009). Finally, as Baskin (2006) points out, firms in emerging and riskier markets are more likely to engage in more extensive programs of social investment than their OECD counterparts that conduct business in low-risk countries. The possible explanation is that as institutional and organizational influences strengthen, firm behavior becomes more constrained which discourages voluntary action leading the following proposition:

Proposition 2: When country risk is moderate, firms commence engagement in CR and invest more in explicit CR than implicit CR

CR and Low Country Risk

As country risk lowers and formal institutions strengthen, taking on a greater range of social responsibilities such as health care, education, employment rights, labor issues, environmental issues, safety rules, and accounting standards, explicit CR decreases and implicit CR increases. As governments increase the range of required socially responsible initiatives, firms may conclude that any additional social initiatives detract from profits or expropriate shareholder wealth, or are unnecessary because they continue to meet the perceived legal requirements (Campbell, 2007; Maignan, 2001; Porter & Kramer, 2002). Contrary to riskier countries, lower risk countries experience stronger institutionalization of societal values and norms as reflected in its rules, regulations, or adherence to industry standards. For instance, in the 1960s and 1970s, awareness of how firms affected environments caused many Western governments to implement and enforce increased environmental regulations. The United States passed the National Environmental Protection Act and established the Environmental Protection Agency in 1969 (Katsoulakos, Koutsodimou, Matraga, & Williams, 2004). In 1971, France required firms with over 300 employees to provide social reports on topics such as working conditions, hygiene, safety, and industrial relationships (Capron & Gray, 2000). Campbell (2007) proposes, firms are more likely to act in a responsible fashion if there are “strong and well-enforced” (p. 955) regulations. Furthermore, Campbell states that corporations will act responsibly because of industry-wide consensuses that firms agree to implement as a response to reduce or defer governmental regulations. Even though adherence to industry self-regulation can go wrong such as in the case of Arthur-Anderson and Enron, most firms willingly follow industry guidelines and government regulations.

The stability of government and its ability to maintain positive and stable political, economic, and financial outlooks are the factors that improve country risk ratings. Overall, when country risk decreases, the lower risk rating most likely occurs due to improved and more stable institutions that assert themselves by requiring firms to take on more institutionalized responsibilities (i.e., implicit CR). This requirement to take on more responsibilities may also decrease the need for corporations to engage in and assume in less explicit CR through engagement in voluntary social initiatives or actions and leads to the third proposition.

Proposition 3: As country risk decreases, firms will engage in more implicit CR and less explicit CR

Conclusions

This conceptual article has argued that country risk has a positive relationship with explicit CR and a negative relationship with implicit CR. The article incorporates Matten and Moon’s (2008) implicit-explicit framework for CR because it helps to determine why CR varies from country to country. This work uses Matten and Moon’s framework because it provides increased insight about CR that is based on its institutional roots, and that those institutions remain critical to shaping the underlying elements of country risk. By extending the framework of Matten and Moon with country risk, a different view about how firms engage in CR initiatives is created. While acknowledging country risk ratings are less than accurate, they may provide a foundation on which firms are able to determine how best to approach their CR programs in different countries. Country risk analysis paints a broad picture to help firms consider strategic responses to the environment. Firms must investigate how each country risk dimension might influence the choice of CR engagement in order to reduce its firm level risk.

The authors assert that country risk influences the implementation of explicit and implicit CR. In very high risk countries, firms will not engage in explicit CR and adhere to limited implicit CR. In high country risk conditions, firms will limit their investments in explicit CR and adhere to limited implicit CR. Under moderate country risk conditions, firms will invest in a very high rate of explicit CR and adhere to increased implicit CR. Low and very low country risk conditions allow firms to lower their investment in explicit CR as governments and institutions are able to meet, more adequately, the needs of society.

There are limitations to this framework as there is no way to generalize to every firm or country situation—there is no “one size fits all” way of implementing CR initiatives based on country risk. Firms will respond to the macroenvironment in many different ways according to their managerial values as well as the values of their stakeholders. Another limitation concerns firms located in less risky countries that have developed and implemented strategic responsibility programs that are extensive. Baskin’s (2006) study shows that firms in emerging markets engage in more extensive CSR than their OECD counterparts by using reporting standards such as the Global Reporting Initiative, the Dow Jones Sustainability Index, and the ISO 14001 standards. These reporting standards often require some type of third party certification, and so, firms in low country risk environments, may in fact, engage in a great deal more explicit CSR than can be accounted for if one attempts to qualify programs as “extensive” using Baskin’s (2006) method.

Another limitation of this conceptualization is that country risk remains a matter of subjective perception of risk managers and risk raters. Ratings are prone to upgrading and downgrading as events occur. Additionally, firm manager’s propensity to engage in risk will vary (Sitkin & Weingart, 1995), which would influence investment in explicit CR. From one month to the next, or from one year to the next, those countries that lie on the boundaries where risk ratings shift higher or lower between rankings are prone to subtle changes in ratings. For instance, Nigeria enjoyed an ICRG moderate risk rating in during 2006 through 2008 and is now rated by the ICRG as one of the ten worst countries with very high country risk. At the country level, it is reasonable that what was once a good investment made in Nigeria during 2006-2008 may currently be considered an unwise investment.

More work needs to be done to determine what firm initiatives might be considered as distinctly implicit or distinctly explicit to help better understand the relationship with country risk as a driver. An empirical study would be useful; however, an exhaustive qualitative categorization is not possible because it is difficult to identify, uniquely and exhaustively, all CR initiatives that are either implicit or explicit. Several CR initiatives may overlap between explicit and implicit. In the case of implicit CR, those initiatives are more difficult to identify without a well-defined set of rules, regulations, and codifications available to the researcher for each country. However, if categorization of CR initiatives, as either explicit or implicit, were achievable, then it would be possible to test these propositions empirically. In the end, the framework is not prescriptive because it is a generalized conceptualization about the relationship of CR and country risk. Rather it is another way in which managers can consider how to engage in CR initiatives. Country risk illuminates the many dimensions regarding how and why companies engage in various types of CR.

Footnotes

Acknowledgements

The authors would like to thank the special issue editors, Jennifer J. Griffin and Aseem Prakash for their patience and insight in revising our article. This article would not be possible without the comments of our anonymous peer reviewers and we are grateful for their time and effort. Finally, the authors extend their gratitude to Jane LeMaster and Bryan Husted for their advice regarding this article.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The authors received no financial support for the research, authorship, and/or publication of this article.

Author Biographies

Ivan Montiel (PhD, Environmental Management, University of California, Santa Barbara) is an assistant professor of corporate sustainability at Loyola Marymount University. His research interests include how organizations can design socially responsible and sustainable strategies while remaining competitive, the adoption and performance implications of voluntary environmental programs, and sustainability issues in emerging economies. His work has been published in such journals as Strategic Management Journal, Journal of Economics and Management Strategy, Journal of Policy Analysis and Management, Journal of Business Ethics and Organization & Environment.

Téofilo Ozuna (PhD, Texas A&M University) is the dean of the College of Business Administration at The University of Texas–Pan American. He has published extensively in top economic and finance journals on topics such as natural resource valuation, economic development, international banking, and international finance; and has made numerous professional and academic presentations at the international, national, regional, and local level. He has undertaken consulting research projects for the World Bank, Inter-American Development Bank, U.S. Department of Commerce, U.S. Department of Justice, Mexico’s National Water Commission, U.S. Agency for International Development, Texas A&M Energy Program, and various Texas cities and regional institutions.

Linda C. Rodríguez (PhD, International Business and Management, The University of Texas–Pan American) is an assistant professor of management at The University of South Carolina–Aiken. Her research interests include corporate social responsibility, corporate sustainability, country risk, and strategic management of corporate responsibility. Her work has appeared in Business & Society previously.

References

Aguilera

R. V.

Rupp

D. E.

Williams

C. A.

Ganapathi

(2007). Putting the S back in corporate social responsibility: A multilevel theory of social change in organizations. Academy of Management Review, 32, 836-863.

Al Khattab

Anchor

J. R.

Davies

E. M. M.

(2008). The institutionalisation of political risk assessment (IPRA) in Jordanian international firms. International Business Review, 17, 688-702.

Bansal

Clelland

(2004). Talking trash: Legitimacy, impression management, and unsystematic risk in the context of the natural environment. Academy of Management Journal, 47(1), 93-103.

Baskin

(2006). Corporate responsibility in emerging markets. Journal of Corporate Citizenship, 24, 29-47.

Basu

Palazzo

(2008). Corporate social responsibility: A process model of sensemaking. Academy of Management Review, 33(1), 122-136.

Bird

(2004). Wealth and poverty in the Niger Delta: Reflections on the history of Shell’s operations in Nigeria. In Bird

Herman

S. W.

(Eds.), International businesses and the challenges of poverty in the developing world (pp. 34-63). New York: Palgrave Macmillan.

Buchholtz

A. K.

Amason

A. C.

Rutherford

M. A.

(1999). Beyond resources: The mediating effect of top management discretion and values on corporate philanthropy. Business and Society, 38(2), 167-187.

Campbell

J. L.

(2007). Why would corporations behave in socially responsible ways? An institutional theory of corporate social responsibility. Academy of Management Review, 32, 946-967.

Capron

Gray

(2000). Experimenting with assessing corporate social responsibility in France: An exploratory note on an initiative by social economy firms. European Accounting Review, 9(1), 99-109.

10.

Carroll

(1979). A three-dimensional conceptual model of corporate performance. Academy of Management Review, 4, 497-505.

11.

Clarke

C. J.

Varma

(1999). Strategic risk management: The new competitive edge. Long Range Planning, 32, 414-424.

12.

Click

R. W.

(2005). Financial and political risks in US direct foreign investment. Journal of International Business Studies, 36, 559-575.

13.

Cosset

J.-C.

Roy

(1991). The determinants of country risk ratings. Journal of International Business Studies, 22(1), 135-142.

14.

Dacin

M. T.

Hitt

M. A.

Levitas

(1997). Selecting partners for successful international alliances: Examinatoin of U.S. and Korean firms. Journal of World Business, 32(1), 3-16.

15.

Erb

C. B.

Harvey

Viskanta

(1996, November/December). Political risk, economic risk, and financial risk. Financial Analysts Journal,52(6), 29-46.

16.

Eyring

M. J.

Johnson

M. W.

Nair

(2011). New business models in emerging markets. Harvard Business Review, 89(1/2), 88-95.

17.

Feinberg

S. E.

Gupta

A. K.

(2009). MNC Subsidiaries and country risk: Internalization as a safeguard against weak external institutions. Academy of Management Journal, 52, 381-399.

18.

Frankental

(2001). Corporate social responsibility—a PR invention? Corporate Communications, 6(1), 18-23.

19.

Galbreath

(2009). Building corporate social responsibility into strategy. European Business Review, 21(2), 109-127.

20.

Garriga

Melé

(2004). Corporate social responsibility theories: Mapping the territory. Journal of Business Ethics, 53(1), 51-71.

21.

Godfrey

P. C.

Merrill

C. B.

Hansen

J. M.

(2009). The relationship between corporate social responsibility and shareholder value: An empirical test of the risk management hypothesis. Strategic Management Journal, 30, 425-445.

22.

Graafland

van de Ven

(2006). Strategic and moral motivation for corporate social responsibility. Journal of Corporate Citizenship, 22, 111-123.

23.

Greening

D. W.

Turban

D. B.

(2000). Corporate social performance as a competitive advantage in attracting a quality workforce. Business & Society, 39, 254-280.

24.

Griffin

Prakash

(2010, March). Corporate responsibility: Initiatives and mechanisms [Call for papers]. Business & Society, 49(1), 179-184. doi:10.1177/000765030352231

25.

Hemingway

C. A.

Maclagan

P. W.

(2004). Managers’ personal values as drivers of corporate social responsibility. Journal of Business Ethics, 50(1), 33-44.

26.

Hopkins

(2007). Corporate social responsibility and international development: Is business the solution? London, UK: Earthscan.

27.

Hoti

McAleer

(2004). An empirical assessment of country risk ratings and associated models. Journal of Economic Surveys, 18, 539-588.

28.

Katsoulakos

Koutsodimou

Matraga

Williams

(2004). An historic perspective of the CSR movement. Retrieved from http://www.csrquest.net/uploadfiles/1D.pdf

29.

Lee

M.-D. P.

(2008). A review of the theories of corporate social responsibility: Its evolutionary path and the road ahead. International Journal of Management Reviews, 10(1), 53-73.

30.

Loungani

Razin

(2001). How beneficial is foreign direct investment for developing countries? Finance & Development, 38(2), 6-9.

31.

Lund-Thomsen

(2004). Towards a critical rramework on corporate social and environmental responsibility in the South: The case of Pakistan. Development, 47(3), 106-113.

32.

Luo

(2006). Political behavior, social responsibility, and perceived corruption: A structuration perspective. Journal of International Business Studies, 37, 747-766.

33.

Maak

(2008). Undivided corporate responsibility: Towards a theory of corporate integrity. Journal of Business Ethics, 82, 353-368.

34.

Maignan

(2001). Consumers’ perceptions of corporate social responsibilities: A cross-cultural comparison. Journal of Business Ethics, 3, 57-72.

35.

Maignan

Ferrell

O. C.

(2000). Measuring corporate citizenship in two countries: The case of the United States and France. Journal of Business Ethics, 23, 283-297.

36.

March

J. G.

Shapira

(1987). Managerial perspectives on risk and risk taking. Management Science, 33, 1404-1418.

37.

Matten

Moon

(2004). “Implicit” and “explicit” CSR: A conceptual framework for understanding CSR in Europe [ICCSR research paper series]. Retrieved from www.nottingham.ac.uk/nubs/ICCSR/pdf/ResearchPdfs/29-2004.pdf

38.

Matten

Moon

(Eds.). (2005). Pan-European approach—A conceptual framework for understanding CSR (First edition). Berlin-Heidelberg: Springer

39.

Matten

Moon

(2008). “Implicit” and “explicit” CSR: A conceptual framework for a comparative understanding of corporate social responsibility. Academy of Management Review, 33, 404-424.

40.

McWilliams

Siegel

(2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26(1), 117-127.

41.

Merna

Al-Thani

(2005). Corporate risk management. An organisational perspective. West Sussex, UK: John Wiley.

42.

Miller

K. D.

Bromiley

(1990). Strategic risk and corporate performance: An analysis of alternative risk measures. Academy of Management Journal, 33, 756-779.

43.

Montiel

(2008). Corporate social responsibility and corporate sustainability: Separate pasts, common futures. Organization & Environment, 21(3), 245-269.

44.

Naeem

M. A.

Welford

(2009). A comparative study of corporate social responsibility in Bangladesh and Pakistan. Corporate Social Responsibility & Environmental Management, 16(2), 108-122.

45.

Nordal

(2001). Country risk, country risk indices, and valuation of FDI: A real options approach. Emerging Markets Review, 2(3), 197-217.

46.

Nussbaum

A. K.

(2009). Ethical corporate social responsibility (CSR) and the pharmaceutical industry: A happy couple? Journal of Medical Marketing, 9(1), 67-76.

47.

Oetzel

J. M.

Bettis

R. A.

Zenner

(2001). Country risk measures: How risky are they? Journal of World Business, 36(2), 128-145.

48.

Orlitzky

Benjamin

J. D.

(2001). Corporate social performance and firm risk: A meta-analytic review. Business & Society, 40, 369-396.

49.

Political Risk Services Group. (2008). ICRG methodology: International country risk guide. Retrieved from http://www.prsgroup.com/ICRG_methodology.aspx

50.

Political Risk Services Group. (2010). Ten best and ten worst countries. Retrieved from http://www.prsgroup.com/prsgroup_shoppingcart/DynamicViewer.aspx

51.

Porter

Kramer

(2002). The competitive advantage of corporate philanthropy. Harvard Business Review, 80(12), 57-68.

52.

Porter

Kramer

(2006). Strategy and society: The link between competitive advantage and corporate social responsibility. Harvard Business Review, 84(12), 78-93.

53.

Prahalad

(2005). The fortune at the bottom of the pyramid: Eradicating poverty through profits. Upper Saddle River, NJ: Wharton School Publishing.

54.

Ramus

Montiel

(2005). When are corporate environmental policies a form of greenwashing? Business & Society, 44, 377-414.

55.

Robock

S. H.

(1971). Political risk: Identification and assessment. Columbia Journal of World Business, 6(4), 6-20.

56.

Rodríguez

L. C.

LeMaster

(2007). Voluntary corporate social responsibility disclosure: SEC “CSR Seal of Approval.” Business & Society, 46, 370-384.

57.

Scherer

Smid

(2000). The downward spiral and the US model principles. Why MNEs should take responsibility for the improvement of world-wide social and environmental conditions. Management International Review, 40, 351-371.

58.

Schroeder

S. K.

(2008). The underpinnings of country risk assessment. Journal of Economic Surveys, 22, 498-535.

59.

Schwarzkopf

(2009). Book review: Corporate social responsibility: The good, the bad and the ugly, by Subhabrata Bobby Banerjee. Journal of International Management, 15(1), 118-119.

60.

Seifert

Morris

S. A.

Bartkus

B. R.

(2004). Having, giving, and getting: Slack resources, corporate philanthropy, and firm financial performance. Business & Society, 43(2) 135-161.

61.

Sharp

Zaidman

(2010). Strategization of CSR. Journal of Business Ethics, 93(1), 51-71. doi:10.1007/s10551-009-0181-2

62.

Sitkin

Weingart

(1995). Determinants of risky decision-making behavior: A test of the mediating role of risk perceptions and propensity. Academy of Management Journal, 38, 1573-1592.

63.

Spence

(1973). Job market signaling. Quarterly Journal of Economics, 87, 355-374.

64.

Tencati

Perrini

Pogutz

(2004). New tools to foster corporate socially responsible behavior. Journal of Business Ethics, 53(1/2), 173-190.

65.

Turban

D. B.

Greening

D. W.

(1997). Corporate social performance and organizational attractiveness to prospective employees. Academy of Management Journal, 40, 658-672.

66.

Ulrich

Thielemann

(1993). How do managers think about market economies and morality? Empirical enquiries into business-ethical thinking patterns. Journal of Business Ethics, 12, 879-898.

67.

Valente

Crane

(2010). Public responsibility and private enterprise in developing countries. California Management Review, 52(3), 52-78.

68.

van Wyk

Dahmer

Custy

M. C.

(2004). Risk management and the business environment in South Africa. Long Range Planning, 37, 259-276.

69.

Verma

Soydemir

(2006). Modeling country risk in Latin America: A country beta approach. Global Finance Journal, 17, 192-213.

70.

Visser

(2008). Corporate social responsibility in developing countries. In Crane

McWilliams

Matten

Moon

Siegel

(Eds.), The Oxford jandbook of corporate social responsibility (pp. 473-479). Oxford, UK: Oxford University Press.

71.

Yoon

Gürhan-Canli

Schwarz

(2006). The effect of corporate social responsibility (CSR) activities on companies with bad reputations. Journal of Consumer Psychology, 16, 377-390.

72.

Zadek

(2004). The path to corporate responsibility. Harvard Business Review, 82(12).