The Influence of Family Firms and Institutional Owners on Corporate Social Responsibility Performance

Abstract

Research on corporate social responsibility (CSR) has traditionally focused on managerial discretion and stakeholders’ influence. This study extends current research by addressing the effect of family firms and institutional owners on CSR performance, namely, CSR strengths and concerns. Based on stewardship theory and the socioemotional wealth perspective, we propose that family firms are more likely to value CSR performance. Next, drawing from multiple agency theory, we predict that institutional owners, unlike family owners, will influence a firm’s CSR performance differently. We tested our hypotheses using a sample of 153 firms from 1994 to 2006 and found general support for our hypotheses. A higher percentage of family owned equity and the presence of a family CEO are found to increase CSR strengths, whereas transient institutional owners have an opposite effect. The presence of a family CEO and founding family are found to reduce CSR concerns. Contrary to our predictions, dedicated institutional owners are positively associated with CSR concerns.

Keywords

corporate social responsibility (CSR)family firms institutional owner multiple agency theory stewardship theory

Corporate social responsibility (CSR) has been an important topic in the management field (Aguinis & Glavas, 2012; Campbell, 2007; Cheng, Ioannou, & Serafeim, 2014; De Bakker, Groenewegen, & Den Hond, 2005; Ghobadian, Money, & Hillenbrand, 2015; Matten & Moon, 2008; Schrempf, 2012). This is particularly so as researchers seek answers in understanding why profit-seeking firms would engage in CSR activities, given that there has not been a consensus reached regarding whether CSR activities necessarily improve a firm’s financial performance (Jyoti & Karunesh, 2014; McWilliams & Siegel, 2000; Tang, Hull, & Rothenberg, 2012; Torugsa, O’Donohue, & Hecker, 2012). Early researchers such as Ackerman (1975, p. 32) argue that CSR is the “management of discretion”; whereas Freeman’s (1984) stakeholder perspective proposes that firms use CSR to build legitimacy as well as satisfy different constituents. Several empirical studies demonstrate how external stakeholders and the overall industry environment can influence an organization’s CSR performance (Christmann, 2004; Delmas & Toffel, 2008; Johnson & Greening, 1999). Research, however, has yet to explore how ownership structure, in particular, family and institutional investor ownership of a firm, impacts CSR performance. Thus, this leads to an interesting question: Does the ownership structure of a firm influence a firm’s CSR performance?

Following extant literature, we define CSR activities as a firm’ activities that advance a social agenda beyond what is required by law (Campbell, 2007; McWilliams & Siegel, 2000; Rodriguez, Siegel, Hillman, & Eden, 2006; Siegel & Vitaliano, 2007). Though prior research has made significant advances in understanding CSR performance, two issues remain unsettled. First, existing studies have tried to answer the question of why firms engage in CSR activities; yet they have attempted to answer the question from either the individuals’ level (e.g., managers’ altruistic preferences) or the external environment (e.g., external pressure from the community). Relatively few studies have addressed this question from the organization-level perspective, specifically, from a corporate governance perspective. Second, while there has been much research on CSR and family firms (Block & Wagner, 2014), there are no studies, that we are aware of, that examine both family firms and institutional owners together. This is surprising given that some scholars suggest as much as 35% of the Fortune 500 firms are controlled by family owners (Gomez-Mejia, Larraza-Kintana, & Makri, 2003). These family firms, along with their institutional owners, may influence CSR performance in conflicting ways. Studies have shown that family firms often behave differently from non-family firms (Berrone, Cruz, & Gomez-Mejia, 2012; Cruz, Larraza-Kintana, Garcés-Galdeano, & Berrone, 2014; Gomez-Mejia, Cruz, Berrone, & De Castro, 2011; Jaskiewicz & Luchak, 2013). For instance, family firms are more likely to exhibit better environmental performance (Berrone, Cruz, Gomez-Mejia, & Larraza-Kintana, 2010), more likely to focus on prevention and use conservation strategies (Jaskiewicz & Luchak, 2013), and less likely to accept significant business risk than non-family firms (Gomez-Mejia, Haynes, Nunez-Nickel, Jacobson, & Moyano-Fuentes, 2007).

In this study, we address these gaps by studying a sample of family firms and non-family firms. We examine the ownership structure, including institutional owners, and how this structure influences a firm’s CSR performance. Based on stewardship theory (J. H. Davis, Schoorman, & Donaldson, 1997), we propose that predominantly family owned firms are more likely to behave as stewards of the firm and pursue long-term organizational goals. Stewardship theory draws from the sociology and psychology fields to explain why some executives weigh a firm’s greater interest more than their own personal interests, thus eliminating opportunistic behaviors (Hernandez, 2012). Stewardship theory can be applied in family firms because family owners are more likely to have identified their firm’s success with their family names (Block & Wagner, 2014). Further, family firms are more likely to value socioemotional wealth over strictly financial gains (Berrone et al., 2010; Cennamo, Berrone, Cruz, & Gomez-Mejia, 2012; Miller & Le Breton-Miller, 2014). Socioemotional wealth is defined as the amount of affect and value family owners receive from their investment in the firm. Socioemotional wealth comes in different shapes and forms, such as prestige, family dynasty, and belongings (Gomez-Mejia et al., 2007).

While family firm owners and managers may be considered stewards of the firm, institutional owners often control a significant percentage of a firm’s equity (Connelly, Tihanyi, Certo, & Hitt, 2010). Unlike stewards, these institutional owners are likely to desire different outcomes. Given that most publicly held organizations have different principals, multiple agency theory (Arthurs, Hoskisson, Busenitz, & Johnson, 2008) is suitable to explain how different institutional owners may influence a firm’s CSR performance in different ways. We theorize that different types of institutional owners (principals) have different utility functions and goals; thus, they expect different organizational outcomes, and in the case of this study, different expectations for CSR performance. As an example of how goals of institutional owners differ, Connelly and colleagues (2010) find that dedicated institutional owners are more likely to increase a firm’s long-term strategic orientation, whereas transient institutional owners are more likely to increase a firm’s short-term tactic strategies.

Given that the different types of institutional owners have varied expectations, multiple agency theory is appropriate in this context as we examine whether different types of institutional owners and the presence of family owners/managers in a firm may seek different investments in CSR. Multiple agency theory differs from agency theory, in that multiple agency theory recognizes not all principals and agents are homogenous in their behaviors. For instance, agency theory indicates that principals usually seek growth in shareholder value, whereas agents will seek to act opportunistically for their own benefit (Arthurs et al., 2008; Hoskisson, Hitt, Johnson, & Grossman, 2002). Yet, multiple agency theory addresses the notion that even institutional investors (principals) have differing expectations, especially based on the length of time they plan on having an investment in a firm.

Building on the tenets of stewardship theory, socioemotional wealth, and multiple agency theory, we propose that family owners, the presence of a family CEO, and the presence of the founding family are positively related to CSR performance. We also predict that dedicated institutional owners will seek long-term growth so they will try to influence a firm’s CSR performance in a positive way. On the other hand, given that transient institutional owners do not hold a firm’s equity for a long-term, we predict that transient owners will have a negative influence on a firm’s CSR performance.

Building on prior scholars’ work that different types of owners influence CSR performance (Graves & Waddock, 1994; Johnson & Greening, 1999), we extend extant research in the following ways. First, we contribute to the literature of family firms and CSR by linking stewardship theory and the socioemotional wealth perspective. Second, our study extends multiple agency theory by explaining how CSR is influenced by organization-level factors that reflect competing principal interests (e.g., family owners and different institutional owner typologies). Finally, this is the first study we are aware of that examines family firms and investor types regarding impacts on CSR strengths and concerns.

This article is structured as follows; first, we perform a literature review examining research on family firms and institutional owners in the context of CSR. Second, we focus on the effect of ownership heterogeneity on CSR based on stewardship theory and multiple agency theory. A conceptual framework and a set of hypotheses are proposed. We tested our hypotheses using a sample of 153 firms from Fortune 100-300 companies over a 13-year period. Finally, we conclude by discussing the implications for research, limitations, and future directions.

Literature Review

Family Firms and CSR Performance

Family firms and CSR performance have received a wide array of interest from scholars. Studies have examined a variety of sizes of businesses, as well as countries of origin. In a seminal study on family firms and CSR performance in S&P 500 firms, Dyer and Whetten (2006) find that while family firms and non-family firms are similar with regard to positive social initiatives, family firms are more adept at avoiding CSR concerns than non-family firms. This position was further supported by Block and Wagner’s (2014) study on family firms. However, Block and Wagner (2014) take a finer-grained approach by examining the individual strengths and concerns that make up CSR. They suggest that regarding CSR, family firms can be responsible and irresponsible at the same time. They find that family ownership is positively associated with CSR dimensions such as diversity, employee, environment, and products, but negatively associated with community-related CSR performance.

In the examination of family firms and CSR performance, Bingham and colleagues (Bingham, Dyer, Smith, & Adams, 2011) examined how firms utilize CSR initiatives to manage certain stakeholders. Their findings suggest that family firms take a more relational stance toward stakeholders compared with non-family firms, leading to greater CSR performance. Overall, the study finds that there are notable differences between the two firm types with regard to social initiatives and social concerns. In particular, family firms pursue more positive social initiatives; however, family firms and non-family firms do not differ when it comes to social concerns.

A large number of CSR studies focus on non-U.S.-based firms, demonstrating that other countries, in particular European nations, are more invested in the value of CSR initiatives verse following profits. In addition, European studies tend to focus on smaller, privately owned businesses (de la Cruz Deniz & Suarez, 2005; Marques, Presas, & Simon, 2014; Uhlaner, van Goor-Balk, & Masurel, 2004). These studies demonstrate a variety of outcomes and perspectives with regard to family firms and CSR activities. For example, in a study of 112 Spanish family firms, only 26 companies viewed CSR as a source of competitive advantage, 33 did not and lacked the resources to pursue CSR initiatives, and another 41 pursued CSR initiatives but view it as a net cost and not a source of advantage (de la Cruz Deniz & Suarez, 2005).

Taken from a different viewpoint, however, CSR activities are pursued as a form of setting the organization up for future generations (Delmas & Gergaud, 2014). In a study of wineries, Delmas and Gergaud (2014) find that when future generations in the family firm are present, the firm seeks to balance current needs while providing the future generations the resources to meet their own needs. Similarly, in a group of Italian small- to medium-sized family firms, philanthropy is found to be an important focus, especially in the presence of family involvement (Campopiano, De Massis, & Chirico, 2014). Their study utilizes stewardship theory as the foundation to examine these philanthropic initiatives.

Leveraging the notion of stewardship theory and socioemotional wealth, Marques and colleagues (2014) examine 12 Spanish firms with regard to their CSR initiatives. Their focus is on family involvement and values in the organization. In particular, altruism and collectivism are the most common values shared across the 12 firms’ families. In addition, the socioemotional wealth component focuses on the identification and binding social ties as being the most prominent values found across family firms. Cruz and colleagues (2014) also find that socioemotional wealth drives higher levels of CSR performance compared with non-family firms. The construct of socioemotional wealth is also found to have a large impact on charitable donations in Chinese firms (Dou, Zhang, & Su, 2014). Beyond socioemotional wealth derived from the CSR initiatives, the family name also plays a significant role in CSR investments (Uhlaner et al., 2004).

Research has found that not all family firms pursue CSR initiatives for the well-being of society. There is also another, more negative perspective when it comes to examining family firms. For example, family firms may have more of a distrust of outsiders (Fukuyama, 1995). Also, family firms may be more concerned about their own interests than others (Kellermans, Eddleston, & Zellweger, 2012). Therefore, socioemotional wealth can be considered a “‘double-edged sword’ eliciting both socially responsible and irresponsible behavior in family firms” (Cruz et al., 2014, p. 16).

Research on family firms, CSR, and institutional owners has covered a wide array of topics. One area that has seen relatively nascent research thus far, however, is the examination of the role of institutional owners on both family firm and non-family firm CSR performance. Therefore, in the following sections we develop and test theory with regard to family ownership, founding family, family CEO, and institutional owner impact on family firm CSR performance as compared with non-family firm CSR performance.

Ownership Heterogeneity on CSR Performance

A review of corporate governance literature reveals that ownership heterogeneity influences firms’ competitive strategies (Burns, Kedia, & Lipson, 2010; Connelly et al., 2010; David, Hitt, & Gimeno, 2001; Ozer, Alakent, & Ahsan, 2010). Most studies are dominated by classic agency theory, where firm strategies are influenced by both the principal and agent (Berle & Means, 1932; Dalton, Hitt, Certo, & Dalton, 2007; Jensen & Meckling, 1976). Agency theory states that both the principal and agent are utility maximizers (Fama & Jensen, 1983). The principal’s utility function is to maximize its share value, whereas the agent’s utility function is to maximize his/her own personal gain (e.g., pay and/or job security). In this vein, classic agency theory treats all owners as the principal and all managers as the agent, indicating that they both behave collectively and have one voice concerning their utility function.

While agency theory tends to assume an agent’s self-interest and opportunistic behavior, stewardship theory (J. H. Davis et al., 1997) can be considered as being on the opposite end of the continuum from agency theory. Stewardship theory suggests that there are managers that have motives that are aligned with the principal’s motives. These agents (as stewards) place the organization’s long-term interest ahead of their short-term personal gains (J. H. Davis et al., 1997). For instance, Wasserman (2006) find that founders of new ventures are more likely to receive less cash compensation than non-founders because founders are more likely to behave as the stewards of the new ventures. His study confirms that if principals are also agents, their behaviors are likely to be different from non-principal agents. In this vein, as family firms are mostly controlled by family owners, they are both the principals and agents. For instance, a family CEO is not only a CEO, she/he is also from the family that controls the firm. A family CEO may not own any equity of the firm, but she/he represents a family that owns equity of the firm. Hence, stewardship theory is applicable to explaining a family firm’s behaviors.

While family owners behave more like stewards, institutional owners typically own a significant portion of a modern firm’s equity, which creates a new type of problem termed “agency problem II” (Villalonga & Amit, 2006). Agency problem II indicates that instead of monitoring agents for opportunistic behaviors, some owners themselves may behave opportunistically. For instance, some owners may seek short-term gains at the expense of the firm’s long-term growth because their primary interest is quick financial gains. This new development in agency theory is best captured by multiple agency theory (Arthurs et al., 2008). Multiple agency theory examines how different principals and agents can have competing interests, which affects the way they influence a firm’s strategies. Traditional agency theory describes the one-to-one principal agent relationship whereas multiple agency theory describes the many-to-many relationships. In essence, multiple agency theory no longer assumes that the owners’ utility function is to maximize share value; different owners can have different utility functions depending on their principle interests.

Several studies have highlighted the influences of different types of ownership on firms’ strategies. For example, institutional owners have been found to influence diversification (Tihanyi, Johnson, Hoskisson, & Hitt, 2003), innovation (Hoskisson et al., 2002), and competitive actions (Connelly et al., 2010). Most studies in this area have focused on market strategies and financial performances. Few studies, however, have focused on non-market strategies and non-financial performance, such as in the case of CSR performance (David, Bloom, & Hillman, 2007). There are exceptions, however, as researchers have found that family firms pollute less (Berrone et al., 2010), and public pension funds and outside directors are positively related to CSR performance (Johnson & Greening, 1999). However, most studies have not explored the different utility functions of the owners (e.g., are they stewards or are they principals that act opportunistically?). Thus, we will examine the different utility functions of family firms (owners and managers) and institutional owners (further divided into dedicated and transient owners) and their influence on a firm’s CSR performance.

Theory and Hypotheses

While CSR can be traced back to as early as the 1930s, the first influential book, Social Responsibilities of the Businessman (Bowen, 1953), is widely considered the beginning of the “modern era of social responsibility” (Carroll, 1979, p. 497; Lockett, Moon, & Visser, 2006).

CSR has gained attention not only in the academic field, but also in the media and popular press (Vogel, 2006). However, CSR is a valued and complex concept and an umbrella phrase that covers relationships between businesses and society (Matten & Moon, 2008). Despite its complexity, the concept of CSR has gained popularity and various studies have been conducted in this area (see De Bakker et al.’s [2005] and Lockett et al.’s [2006] reviews on CSR).

Yet, extant literature has focused on a firm’s CSR performance as a whole by treating it as a homogenous activity and not differentiating between different dimensions or strengths/concerns (see exceptions in Block and Wagner [2014] and Dyer and Whetten [2006]). Given that CSR includes a variety of activities, it is plausible that firms can have unique CSR strengths and concerns at the same time (Mattingly & Berman, 2006). Thus, in our study, we separate CSR performance into CSR strengths and CSR concerns to gain a more fine-grained look into a firm’s CSR performance. CSR strengths include a firm’s positive CSR activities (e.g., charitable giving and support for education), whereas CSR concerns include a firm’s negative CSR activities (e.g., negative economic impact and tax disputes).

Family Firms

There are several definitions of what constitutes a family firm (Villalonga & Amit, 2006), but we chose to use Miller, Le Breton-Miller, Lester, and Cannella’s (2007) definition of family firms as this definition is commonly used. We identify a family firm as having a family owning more than 5% of the firm’s equity and having more than one family member serving as an executive officer or on the board of directors. Family owners are typically those that own a smaller number of companies (in many cases, only a few), and have family members serving as executives in those companies. This puts those executives that are one of the family owners in a unique position where they act not only as principals, but as agents as well. In this vein, agents that are also principals are more likely to behave like stewards (Hernandez, 2012). Therefore, family firms have executives that are family members who serve as stewards of the firm. As a result of this stewardship mentality, family members are more likely to pursue CSR activities. CSR activities are those actions that strengthen a firm’s relationship with society and the external environment. Because stewards are more likely to value long-term relations and growth for the firm, they are more likely to value CSR activities. In fact, research has shown that companies that invest in CSR activities are likely to gain financial returns from those investments in the long run (Orlitzky, Schmidt, & Rynes, 2003).

Further, many scholars argue that family firms value socioemotional wealth over profit gains (Berrone et al., 2010; Gomez-Mejia et al., 2007; Miller & Le Breton-Miller, 2014). As mentioned earlier, socioemotional wealth is defined as the amount of affect and value family owners receive when they invest in a firm (Gomez-Mejia et al., 2007). Socioemotional wealth is essentially the non-economic utilities that the family owners receive from running their family firms. Socioemotional wealth is best described by Morgan and Gomez-Mejia (2014, p. 280) as “hooked on a feeling.”

Families that have significant ownership stakes in a firm often affect a family’s prestige, and a negative image of the firm affects the family. When a firm has a higher CSR performance, it is more likely to be considered as a good corporate citizen. For family owners, a positive image (e.g., good corporate citizens) is more likely to enhance their socioemotional wealth. Berrone et al. (2010) argue that socioemotional wealth is central in family firms and found that family firms demonstrate better environmental CSR performance than non-family owned firms. Given that socioemotional wealth is important to family owners, we predict that when family owners have a larger equity stake in the organization, the family firm is more likely to have superior CSR performance. Conversely, as family owners’ equity increases, CSR concerns will be lower. This is due to family owners trying to minimize any negative impacts on the prestige of the family. Therefore, we propose the following hypotheses:

Hypothesis 1a: The higher the percentage of family owners’ equity, the higher the firm’s CSR strengths.

Hypothesis 1b: The higher the percentage of family owners’ equity, the lower the firm’s CSR concerns.

Research has shown that a top management team can increase a firm’s CSR strengths but has no influence on CSR concerns (Wong, Ormiston, & Tetlock, 2011). Related to Hypotheses 1a and 1b, as family owners are more likely to value CSR performance because of the stewardship and socioemotional wealth, a CEO who is also a member of the family is likely to be able to exercise more influence toward investing in CSR activities. It is important to note that a family CEO does not necessarily own equity in the family firm. In other words, we argue that the family CEO does not need to be an owner of the firm himself/herself. Structural power is one of the four types of managerial power (Finkelstein, 1992). Given that a CEO occupies a position of structural power, she/he is more likely to have an important influence on deciding whether a firm will engage in more CSR activities. Many CEOs are hired by the board of directors on behalf of the owners of the firm. These professional managers, or agents, are less likely to be concerned with CSR activities for the sake of improving shareholder returns, given that most agents are more concerned with their own personal financial gains (Dalton et al., 2007). Conversely, when the CEO is also a member of the family, she/he is more likely to see himself/herself as a steward of the firm, and the family, and seek to improve a firm’s CSR performance. By doing so, the CEO will help the family gain a better relationship with society and acquire more socioemotional wealth. In addition, the family CEO will seek to minimize threats against the family owners, and therefore try to find ways of minimizing CSR concerns. Thus, we propose the following hypotheses:

Hypothesis 2a: The presence of a family CEO is positively related to CSR strengths.

Hypothesis 2b: The presence of a family CEO is negatively related to CSR concerns.

Further, not all family firms are still controlled by the founding family. A founding family is defined as the family that founded and established the firm. A family firm that is controlled by the founding family is a firm that is still controlled by either its founders or later generations of the family. Research has suggested that founding families behave differently than non-founding families (Berrone et al., 2012). For instance, some studies show that founding families are more attached and committed to the firms that they established (Chua, Chrisman, & Sharma, 1999; Mishra & McConaughy, 1999; Schulze, Lubatkin, & Dino, 2003). Scholars argue that founding families will value socioemotional wealth more than non-founding families (Gomez-Mejia et al., 2007). Given that the founding family has invested its time and money from the very beginning of the business, we argue that the founding family will be more committed to the image of the family firm. Hence, the founding family will care more about the firm’s relation with society and engage in more CSR activities, resulting in better CSR performance. Also, as prior researchers suggest, a founding family is more likely to value socioemotional wealth more than a non-founding family, so a better CSR performance is likely to increase the founding family’s socioemotional wealth. As socioemotional wealth is of great importance to the founding family, it is also more likely that they will focus on minimizing the CSR concerns as it could result in a reduction in the socioemotional wealth received from investing in CSR initiatives. Based on the arguments above, we propose

Hypothesis 3a: The presence of the founding family is positively related to CSR strengths.

Hypothesis 3b: The presence of the founding family is negatively related to CSR concerns.

Institutional Owners

Institutional owners have gained increasing attention by researchers as a result of their growing ownership stakes and influences in firms. In 1965, institutional owners’ equity control accounted for 15.8%. Over the next two decades, they increased their equity ownership to 42.7% in 1986 in the United States (Useem, 1993). In recent years, they have increased their equity stakes to over 70% in publicly traded firms (Gillan & Starks, 2007). This has a fundamental implication to the ownership structure of corporations. Instead of being owned by different individual shareholders, corporations are now predominantly owned by institutional owners. These institutional owners consist of professional investors, whose full-time job is to manage a portfolio of funds. As a result of this increased ownership, typically more than 5% of the outstanding equity, it is more difficult for them to buy and sell their shares. This is due to the possible market reactions as a result of institutional owners attempting to sell their shares on the market. Given the large number of shares owned by these institutional investors, attempting to sell large quantities of shares in the corporation could lead to a potentially drastic decrease in share price, leading to a devaluation of their investment (G. F. Davis & Thompson, 1994). Due to these reasons, institutional owners have a higher premium on exit. Thus, this has led to an alternative choice for many institutional owners, “voice” (Connelly et al., 2010; Filatotchev & Toms, 2006). Voicing their concerns is preferred because it is not as costly as exiting. Hence, investor activism has emerged as a new phenomenon and subject of study (David et al., 2007; Demsetz & Lehn, 1985; Holderness & Sheehan, 1988; Ryan & Schneider, 2002). Because institutional owners have a large ownership stake in a company, they can exert their influence on managers to make certain changes or investments. For instance, it has been demonstrated that public pension fund invested companies have been associated with higher CSR performance (Johnson & Greening, 1999).

Prior research has, in general, divided institutional owners into categories according to the type of investments, such as public pension funds, investment banking, and mutual funds (Johnson & Greening, 1999). While these categories are useful, scholars have started to recognize that it is the principal interest that is more important (Connelly et al., 2010). For example, some mutual funds may trade in and out of the market as frequently as the investment banks. In that case, we would expect that these mutual funds behave similarly to the investment banks. Thus, it is important to distinguish the differences among institutional owners based on their investment strategies. Porter (1992) defined three types of institutional owners: dedicated, transient, and quasi-indexers. Dedicated owners are those who own a large percentage of equity in a smaller number of firms with the intentions to hold onto these equity investments over a longer time horizon. Transient owners, conversely, are those who buy and sell their holdings more frequently based on the firms’ financial performance. Quasi-indexers are those that invest based on a broad index. They are not necessarily concerned with a firm’s strategy and thus we do not examine them in this study because they are unlikely to play any role in shaping a firm’s CSR strategy.

Institutional owners, unlike traditional principals as portrayed in agency theory, are best explained by multiple agency theory. Not all institutional owners necessarily behave in the same way. For instance, dedicated owners have been shown to predict a firm’s long-term strategic competitive actions (Connelly et al., 2010). These long-term strategic competitive actions are those that require a significant commitment and resources for firms. They are costly to implement, difficult to reverse, and involve very complex information (Smith, Grimm, Gannon, & Chen, 1991). Examples of a strategic competitive action include mergers and acquisitions (M&As), changing organizational structures, and establishing subsidiaries in a foreign country.

Because dedicated owners typically own their equity stakes for a longer period of time in a smaller number of firms, they have more incentive to be concerned with not only the financial performance, but the overall, long-term performance of the firms. As society generally has expectations for the companies, dedicated owners will want to make sure that the companies they invest in conform to these expectations. Conforming to a society’s expectation can possibly generate long-term benefits to the company. In other words, higher CSR performance may enable a firm to have more access to capital (Cheng et al., 2014) and generate higher returns in the future (Luo, Wang, Raithel, & Zheng, 2015). However, the initial costs are going to be high and the rewards are usually not realized until later. Therefore, we predict that only dedicated owners will demand companies to demonstrate a high CSR performance as they foresee the long-term benefit of doing so. As ramifications from higher levels of CSR concerns could potentially affect share price, dedicated owners will seek to minimize these concerns. Thus, the following hypotheses are proposed:

Hypothesis 4a: The higher the percentage of dedicated owners’ equity, the higher the firm’s CSR strengths.

Hypothesis 4b: The higher the percentage of dedicated owners’ equity, the lower the firm’s CSR concerns.

On the other hand, by their very nature, transient owners are those institutional investors that own shares for a short period of time with a large number of companies. They trade their equity holdings on a more frequent basis than dedicated owners; in most cases, transient owners trade their equity holdings based on the firms’ short-term financial performance (Porter, 1992). Based on multiple agency theory, transient owners are more likely to behave differently than dedicated owners, given that their utility function and goals may be different. For instance, Connelly and his colleagues (Connelly et al., 2010) find that transient owners, due to their short-term orientation, are more likely to influence a firm’s short-term day-to-day operations. Those actions, also referred to as tactical competitive actions, require fewer resources and are easier to implement and reverse (Smith et al., 1991). CSR activities, on the other hand, require quite a bit of resources, and a transient investor may not see the benefit in a short amount of time (Orlitzky et al., 2003). Given that transient owners are more interested in short-term financial gains, we argue that they are less likely to encourage a firm to engage in CSR activities, thus resulting in a negative impact on CSR performance. In addition, as these transient owners are more focused on short-term ownership, they will be less likely to invest in companies that extend resources to minimize CSR concerns as a result of the costs associated with such investments. Therefore, we suggest the following hypotheses:

Hypothesis 5a: The higher the percentage of transient owners’ equity, the lower the firm’s CSR strengths.

Hypothesis 5b: The higher the percentage of transient owners’ equity, the higher the firm’s CSR concerns.

Methods

Sample and Data Collection

To measure the relationship between family firms and CSR, a longitudinal study is preferred as time is an important element in analyzing the effect (Bollen & Curran, 2006; Singer & Willett, 2003). Our sample consists of companies ranked between 100 and 300 on the Fortune 500 list each year from 1994 to 2006. We chose Fortune 100 to 300 companies to eliminate the largest public companies and smaller public companies. Because the Fortune 100 to 300 list changes every year, not every firm in the sample has been continuously on the list from 1994 to 2006. For example, American Electric Power Company (AEP) is in the sample from 1994 to 2006, but Automatic Data Processing, Inc (ADP) is only in the sample from 2001 to 2006. The ownership data were collected from proxy statements and Compact Disclosure, and the CSR scores were drawn from the Kinder, Lydenberg, Domini, and Company (KLD) database. Specific firm information (e.g., firm assets and ROS) was gathered from the Compustat database. As a result of not every firm remaining on the Fortune 100 to 300 list, and because of missing data from different database and proxy statements, the average number of firms is 153 over 13 years, which represents 1,478 firm-year observations.

Measures

CSR strengths and concerns

These variables were measured by using KLD’s data. Most CSR studies have used data from KLD STATS (Statistical Tool for Analyzing Trends in Social and Environmental Performance) to measure CSR (David et al., 2007; Graves & Waddock, 1994; Johnson & Greening, 1999). There are seven major categories on CSR: environment, community, corporate governance, diversity, employee relations, human rights, and product quality and safety. KLD further divides the CSR ratings into strengths and concerns. Because KLD has changed its categories over the years, we retain five categories for our analysis: environment, community, diversity, employee relations, and product quality and safety. Prior research has suggested that CSR performance should be evaluated in terms of the positive and negative ratings (Block & Wagner, 2014; Chatterji, Levine, & Toffel, 2009; Dyer & Whetten, 2006; Mattingly & Berman, 2006); therefore, we separate KLD’s CSR performance into CSR Strengths and CSR Concerns. Because ownership structure can take some time to show their influence, CSR activities may not be diffused within a year or 2 years. Thus, we took a 3-year average of CSR strengths and CSR concerns. This can minimize year effect and allow ownership heterogeneity more time to influence CSR Performance.

Family owners

As noted previously, a family firm is defined as having a family owning more than 5% of the firm’s equity and having more than one family member serving as executive officers or directors (Miller et al., 2007). Therefore, if a family owns less than 5% of the firm’s equity or has only one person (or none) serving as executive officers or directors, it is not coded as a family firm. In other words, both conditions have to be met (owning more than 5% of the firm’s equity and having more than one family members serving as executive officers or directors) to be in the sample of our family firms.

We collected firm data from the proxy statements, and cross-checked with LexisNexis Corporate Affiliations, Hoovers, and individual company websites. We first identified which firms are family firms (by having a family owning more than 5% of the firm’s equity and having more than one family member serving as executive officers or directors) and then measured the percentage of the equity owned by the family members. Thus, Family Owners is measured by the percentage of the total equity owned by all family owners and lagged by 1 year. In our sample, there is only one family for each firm (e.g., none of the firms in our sample has two families that control the firm). For non-family firms, the percentage of the equity owned by family owners is 0.

Family CEO

It is a binary variable: A CEO who is also a member of the family is coded as 1 and 0 otherwise. A CEO who is also a member of the family does not necessarily mean she/he also owns equity of the firm. It is lagged by 1 year.

Founding family

It is defined as the family that founded and established the firm; it includes the original founders and its later generations. It is a binary variable: A family firm that is still controlled by the founding family is coded as 1 and 0 otherwise. It is lagged by 1 year.

Dedicated owners and transient owners

By using factor and cluster analyses, Bushee (1998) categorized institutional owners into three categories: dedicated, transient, and quasi-indexer owners, according to Porter’s (1992) descriptions. The categorization of institutional owners is based on their past investment behaviors (e.g., diversification of an institutional owner’s portfolio, the portfolio turnover rate of an institutional owner, and the trading sensitivity to current earnings). These past investment behaviors are captured by nine variables (concentration, average percentage holding, large block percentage holding, Herfindahl, turnover, stability, earnings sensitivity 1, earnings sensitivity 2, earnings sensitivity 3) and then grouped into three factors (portfolio diversification, portfolio turnover, and sensitivity to earnings).

By cluster analysis, Bushee (1998) can categorize institutional owners into three classifications. Dedicated owners have low portfolio diversification, turnover, and trading sensitivity. Transient owners are the opposite of the dedicated owners. Quasi-indexer owners, on the other hand, are in the middle. Following Bushee’s (1998) method, we collected the data (nine variables) to calculate and classify institutional owners into three categories: dedicated owners, transient owners, and quasi-indexers. Next, we captured the percentage of the equity each institutional owner had in the firm. We then summed the percentage of the equity of institutional owners according to their categories (dedicated, transient, or quasi-indexer owners). Thus, Dedicated Owners and Transient Owners are measured by the percentage of the equity owned by dedicated or transient owners. They are also lagged by 1 year. We did not use quasi-indexer owners as our predictor given their investment decisions are based on index.

Control variables

Research has shown that larger firms are more likely to increase their CSR performance (Stanwick & Stanwick, 1998). This can be explained by the fact that larger firms have more resources and are able to commit them for CSR activities (Perrini, Russo, & Tencati, 2007). Therefore, according to Lenox and Eesley (2009), we measured firm’s total assets as Firm Size as a control variable. To account for the skewed distribution, we took the natural logarithm. It is also possible that firms with better financial performance may make more investments in CSR as they have more resources. Therefore, we controlled for firm performance (ROS) using return on sales, ROS. We also used Prior CSR Strengths and Prior CSR Concerns score as control variables. They are measured by the CSR Strengths and CSR Concerns scores the year before, as equivalent of a 1-year lag. Outside Directors was calculated by the number of outside directors divided by the total number of directors. Given that Bushee (1998) categorized institutional owners into three categories (dedicated, transient, and quasi-indexer owners), it is important to control for the quasi-indexer owners. Quasi-Indexer Owners is measured by the percentage of the equity owned by the quasi-indexer owners as defined by Bushee (1998). All above control variables are lagged by 1 year (Beckman, Haunschild, & Phillips, 2004; Carpenter & Westphal, 2001; Westphal & Zajac, 1997). To account for industry effect, we controlled for mean CSR scores for firms in the same two-digit Standard Industrial Classification (SIC). Industry CSR Strengths and Industry CSR Concerns are 3-year-average scores to minimize the year effect. Finally, we included year dummy variables.

Results

In our sample, approximately 20.62% of the firms are family firms as defined in our description. The mean percentage of equity holdings for dedicated owners is 9.43%, whereas 14.14% for transient owners. In the sample of family firms, 51% of them have a family CEO and 92% are still held by the founding family. This is important, because if every family firm has a family CEO or is still held by the founding family, our analyses for the hypotheses on the family CEO and founding family will mean very little. Further, the percentage of the equity holding of the dedicated owners is 9.20% in family firms and 9.50% in non-family firms. The percentage of the equity holding of the transient owners is 12.90% in family firms and 14.46% in non-family firms.

Table 1 presents the means and standard deviations of the variables for family and non-family firms. There are some differences in the means between the two groups according to the t tests. Firm size, outside directors, and transient owners were all found to be significantly different when comparing their means.

Table 1.

Means and Standard Deviations for Family Firms Versus Non-Family Firms.

Variables	Mean for family firms	Mean for non-family firms
CSR^†	0.15	0.53
Prior CSR	0.29	0.50
Industry CSR	0.00	−0.10
ROS	0.06	0.06
Firm Size***	8.91	9.36
Outside Directors*	0.36	0.41
Dedicated Owners	9.20	9.50
Transient Owners*	12.90	14.46

Note. Total number of firms is 153 with 32 family firms and 121 non-family firms. Firm Size, Outside Directors, and Transient Owners were all found to be significantly different when comparing their means utilizing a t test. CSR = corporate social responsibility.

†

p < .10. *p < .05. **p < .01. ***p < .001.

Table 2 represents descriptive statistics and intercorrelations. We used ordinary least squares (OLS) models to calculate variance inflation factor (VIF) scores as it is more conservative for this type of diagnostic test (Hitt, Bierman, & Uhlenbruck, 2006). Multicollinearity does not present any obvious problem as all the VIF scores were below 3.0 (see Tables 3 and 4). However, given that Founding Family has a VIF of 2.96/2.93 that can pose potential problems with multicollinearity, we ran different models independently. We conducted a Hausman test on the models. The results were statistically significant, confirming a fixed-effects model should be used instead of a random-effects model. In order to reduce potential contemporaneous correlation, we added time dummies in all our models (Certo & Semadeni, 2006).

Table 2.

Descriptive Statistics and Correlations.

Variable	M	SD	1	2	3	4	5	6	7	8	9	10	11	12	13	14
1. CSR Strengths	2.96	2.56
2. CSR Concerns	2.51	1.97	.09
3. Prior CSR Strengths	2.48	2.36	.86	.09
4. Industry CSR Strengths	1.61	0.83	.41	−.01	.41
5. Prior CSR Concerns	2.01	1.88	.05	.78	.08	.01
6. Industry CSR Concerns	1.69	0.88	−.09	.55	−.07	.12	.53
7. ROS	0.06	0.11	.06	−.11	.02	−.05	−.10	−.05
8. Firm Size	9.28	0.85	.18	.26	.17	.04	.18	.14	.05
9. Outside Directors	0.41	0.39	.19	.31	.16	−.01	.21	.02	−.06	.19
10. Quasi-Indexer Owners	0.39	0.20	.07	.04	.01	−.01	.03	−.15	.06	−.08	.24
11. Family Owners	3.14	8.79	−.04	−.12	−.02	.12	−.12	−.01	.01	−.19	−.06	−.09
12. Family CEO	0.10	0.30	−.13	−.06	−.11	−.10	−.09	−.04	−.03	−.13	−.06	−.06	.47
13. Founding Family	0.19	0.39	−.13	−.12	−.12	.03	−.14	−.08	.02	−.21	−.06	−.01	.71	.67
14. Dedicated Owners	9.40	9.11	−.10	−.14	−.08	−.02	−.08	−.12	−.11	−.13	−.17	−010	−.06	.00	−.03
15. Transient Owners	13.83	10.86	−.09	−.11	−.07	−.05	−.12	−.13	−.13	−.04	.17	.06	−.12	.04	−.07	.29

Note. N = 1,478. Correlations greater than |0.06| are statistically significant at p < .05. CSR = corporate social responsibility.

Table 3.

Variance inflation factor for CSR Strengths Models.

Variable	VIF	1/VIF
Founding Family	2.96	0.3384
Family Owners	2.13	0.4694
Family CEO	1.89	0.5284
Prior CSR Strengths	1.30	0.7709
Industry CSR Strengths	1.28	0.7816
Outside Directors	1.23	0.8107
Transient Owners	1.19	0.8425
Dedicated Owners	1.18	0.8445
Firm Size	1.15	0.8729
Quasi-Indexer Owners	1.11	0.8980
ROS	1.04	0.9571
Mean VIF	1.50

Note. CSR = corporate social responsibility.

Table 4.

Variance inflation factor for CSR Concerns Models.

Variable	VIF	1/VIF
Founding Family	2.93	0.3416
Family Owners	2.09	0.4777
Family CEO	1.84	0.5449
Prior CSR Concerns	1.56	0.6417
Industry CSR Concerns	1.48	0.6746
Outside Directors	1.26	0.7934
Transient Owners	1.22	0.8209
Dedicated Owners	1.20	0.8339
Firm Size	1.15	0.8720
Quasi-Indexer Owners	1.14	0.8737
ROS	1.05	0.9499
Mean VIF	1.54

Note. CSR = corporate social responsibility.

Tables 5 and 6 present the results from the fixed-effects models. In Table 5, CSR Strengths is the dependent variable. Model 1 includes only the control variables. Model 2 to Model 4 include control variables and different predictors to avoid potential multicollinearity issue among Family Owners, Family CEO, and Founding Family. Model 5 includes all variables. In Table 6, CSR Concerns is the outcome variable. Similarly, Model 6 includes only the control variables. Model 7 to Model 9 include control variables and different predictors to avoid potential multicollinearity issue among Family Owners, Family CEO, and Founding Family. Model 10 includes all variables.

Table 5.

Results of Fixed-Effects Panel Data Analyses on CSR Strengths.

Variables	Model 1	Model 2	Model 3	Model 4	Model 5
Controls
Prior CSR Strengths	0.293***	0.275***	0.273***	0.284***	0.267***
Industry CSR Strengths	−0.330	−0.320	−0.292	−0.339	−0.284
ROS	0.442	0.469^†	0.473^†	0.473^†	0.468^†
Firm Size	0.143*	0.168**	0.152**	0.131*	0.174**
Outside Directors	0.726*	0.699*	0.497	0.699*	0.537^†
Quasi-Indexer Owners	−0.361	−0.295	−0.289	−0.276	−0.332
Predictors
Family Owners		0.049***			0.0358**
Family CEO			1.084***		0.756**
Founding Family				0.561	0.115
Dedicated Owners		−0.004	−0.004	−0.005	−0.004
Transient Owners		−0.007^†	−0.007^†	−0.007^†	−0.007^†
Constant	0.96	0.66	0.80	1.06	0.50
F-Statistic	39.89***	36.05***	36.01***	34.72***	33.48***
Degree of Freedom	18	21	21	21	23
Observations	1,478	1,478	1,478	1,478	1,478

Note. Year dummies are used but not shown in the table. None of the dummies was significant, thus not included in this table. All variables are lagged by 1 year except Industry CSR Strengths. CSR = corporate social responsibility.

†

p < .10. *p < .05. **p < .01. ***p < .001.

Table 6.

Results of Fixed-Effects Panel Data Analyses on CSR Concerns.

Variables	Model 6	Model 7	Model 8	Model 9	Model 10
Controls
Prior CSR Concerns	0.208***	0.207***	0.205***	0.197***	0.196***
Industry CSR Concerns	−0.018	0.007	0.005	0.037	0.035
ROS	−0.881**	−0.864**	−0.869**	−0.875**	−0.875**
Firm Size	0.041	0.044	0.038	0.032	0.034
Outside Directors	0.349	0.380	0.493^†	0.531^†	0.539^†
Quasi-Indexer Owners	0.012	0.033	0.048	0.222	0.220
Predictors
Family Owners		−0.008			0.003
Family CEO			−0.518*		−0.047
Founding Family				−2.269***	−2.262***
Dedicated Owners		0.007^†	0.007^†	0.009*	0.009*
Transient Owners		−0.002	−0.002	−0.002	−0.002
Constant	0.98	0.85	0.94	1.27	1.26
F-Statistic	53.08***	45.71***	46.09***	49.93***	45.52***
Degree of Freedom	18	21	21	21	23
Observations	1,478	1,478	1,478	1,478	1,478

†

p < .10. *p < .05. **p < .01. ***p < .001.

Family Owners

We predicted that family owners are positively related to CSR strengths and negatively related to CSR concerns. In Model 2, the result is positive and statistically significant (0.049, p < .001). In Model 5, the result is still positive and statistically significant (0.0358, p < .01). Thus, Hypothesis 1a is supported. For CSR Concerns, however, the results are not statistically significant in Model 7 and Model 10. Thus, Hypothesis 1b is not supported.

Family CEO

We predicted that family CEO is positively related to CSR strengths and negatively related to CSR concerns. In Model 3, the result is positive and statistically significant (1.084, p < .001). In Model 5, the result is still positive and statistically significant (0.756, p < .01). Thus, Hypothesis 2a is supported. For CSR concerns, the result is negative and statistically significant in Model 8 (−0.518, p < .05). However, when all predictors are added in Model 10, the result became statistically non-significant. Thus, Hypothesis 2b received partial support.

Founding Family

We predicted that the founding family is positively related to CSR strengths and negatively related to CSR concerns. The results are positive but statistically non-significant in both Models 4 and 5. Thus, Hypothesis 3a is not supported. For CSR concerns, however, the results are both negative and statistically significant in Models 9 and 10 (2.269/2.262, p < .001). Hypothesis 3b is supported.

Dedicated Owners

We predicted that dedicated owners are positively related to CSR strengths and negatively related to CSR concerns. The results are statistically non-significant in Models 2 to 5, implying Hypothesis 4a is not supported. For CSR concerns, the results are opposite of our prediction; the results are positive and marginally statistically significant in Models 7 and 8, and statistically significant in Models 9 and 10. Thus, Hypothesis 4b is clearly not supported.

Transient Owners

We predicted that transient owners are negatively related to CSR strengths and positively related to CSR concerns. The results are mixed. For CSR strengths, the results are negative and marginally and statistically significant in Models 2 to 5, Thus, Hypothesis 5a is marginally supported. However, for CSR concerns, the results are statistically non-significant in Models 7 to 10. Hence, Hypothesis 5b is not supported.

Discussion

Family firms are an important economic force in the United States (Gomez-Mejia et al., 2007), but relatively little research has been conducted to explore the governance and ownership influences on CSR performance. From our study, we find that within a sample of firms from Fortune 500 companies, a higher percentage of equity owned by the family owners are positively associated with CSR strengths. Further, the presence of a family CEO is also positively associated with a firm’s CSR strengths. On the other hand, family owners’ equity was not shown to influence CSR concerns, whereas the presence of a family CEO seems to reduce CSR concerns. In terms of the founding family, we found that their presence reduced CSR concerns but had no significant influence on CSR strengths. Taking these results as a whole, these findings lend credence to the notion that family members are more likely to behave as stewards of the firm and may be more interested in the socioemotional wealth facet of investing in CSR rather than a pure focus on short-term profit maximization. In fact, through meta-analytic studies, researchers were able to show that CSR performance can improve a firm’s financial performance (Orlitzky et al., 2003; Wang, Dou, & Jia, 2016). Analyzing 30 years of research, Orlitzky et al. (2003) found that when firms invest in CSR activities, they are likely to hold a better reputation and goodwill in the eyes of their stakeholders. In return, the positive influence of reputation and goodwill helps the firms that invested in CSR activities access more financial capital.

As we proposed, family members are more likely to behave as the stewards of the firm and value socioemotional wealth. Hence, these families are more interested in their own reputations and are willing to sacrifice some monetary gains for either personal, reputational gains, or long-term growth of the organization (Deephouse & Jaskiewicz, 2013). Engaging in CSR activities may have long-term effects given that investing in such initiatives may give these companies a competitive advantage as laws change and investors and consumers become more interested in firms being more socially responsible.

However, our results did not support the prediction that dedicated owners are positively related to CSR strengths and negatively related to CSR concerns; in fact, we found that dedicated owners have no influence on CSR strengths but can increase CSR concerns. Though the results are marginally significant, there is still an effect that is puzzling since our theory predicted that dedicated owners would have a positive influence on a firm’s CSR strengths and opposite influence on CSR concerns. One possible explanation is that dedicated owners, though focused on long-term investments on the firm, do not necessarily associate themselves with the firm’s image and reputation. In this vein, unlike family owners, dedicated owners may not be concerned with socioemotional wealth. Prior literature has shown that family owners care about socioemotional wealth (Gomez-Mejia et al., 2007), but dedicated owners may not care for the same “fuzzy” feelings. This may explain why dedicated owners have no influence on CSR strengths. Further, to explain why dedicated owners are found to increase CSR concerns, it may be because dedicated owners are more interested in shareholder gain, thus influencing firms to focus more on profits, rather than non-economic activities, such as CSR. Given that dedicated owners tend to hold firm equity for a longer period of time, they may exert more influence on firms to focus more on activities that can raise CSR concerns but generate more profits. This could include activities such as new product introduction, diversification moves, or other major strategic changes.

The results also indicate that transient owners are marginally significant, yet negatively associated with a firm’s CSR strengths. However, we did not find support for our hypothesis with regard to transient owners and increased levels of CSR concerns. Because transient owners only hold a firm’s equity for a short term, they are more likely to focus on short-term gains. This can explain why transient owners are less likely to have their firms invest in companies whose CSR activities do not provide immediate financial gains, hence the negative relationship with CSR strengths. On the other hand, an alternative explanation as to why transient owners did not lead to a significant result with regard to CSR concerns may be revealed by the results of the t tests. The means for family owned firms depict that transient holder stakes in these types of firms is lower than in non-family owned firms. This indicates that transient owners may limit their investment in family owned firms because of their long-term strategic orientation. Therefore, transient owners may be more inclined to focus their investments on firms that they are able to influence the short-term tactical strategies (Connelly et al., 2010). And as the results of our study show that family firms have higher CSR strengths and lower CSR concerns, the lack of findings regarding transient investors indicate that such investors may seek to minimize investments in companies that pursue these long-term investments.

Another result of the findings from this study is the impact on multiple agency theory. We found that when examining different variables that describe family firms, our hypotheses were mostly supported as predicted by stewardship theory. However, dedicated owners do not lead to predicted outcomes when it comes to CSR strengths and concerns. In fact, the results show that firms with a higher level of dedicated ownership experience increased CSR concerns. Hence, we suggest that dedicated institutional owners may be more interested in profit-seeking activities than CSR activities. In addition, given the lack of significant findings for transient owners, we suggest that transient institutional owners may not care about CSR activities. Though the results are not what we predicted, they still indicate that different types of owners do have different goals in mind, thus suggesting multiple agency theory is in play.

Limitations and Future Research

This research should be examined in light of its limitations. As previously mentioned, our sample is limited to Fortune 100-300 firms. Future research may consider expanding the sample to include not only more family firms, but also family firms that are not in the Fortune 500 companies (i.e., firms that are publicly traded, but are smaller than those found in the Fortune 500 or the S&P 500). This way, the result can be more generalizable to all family firms, whether they are small or large. Further, this study did not examine the details of the CSR activities (the input), only the resultant performance (the outcome). Future research should try to untangle CSR activities based on the ownership types (dedicated vs. transient) to identify whether or not different owners really do not care about CSR investments. It could simply be that different owners are interested in different types of CSR activities, but implementation of these activities does not lead to an overall improvement in CSR performance.

As a result of the previous limitation, ownership types should be further examined to identify whether they invest in specific types of CSR strengths or concerns. It could be that different institutional owners value different types of CSR investments, which may lead to further untangling the results of this study. For example, while overall CSR performance was actually negative, it may be that dedicated owners care more about the environment, and transient owners care more about the governance facets of CSR, thus the aggregate measure of CSR performance may not capture these finer-grained details.

In addition to examining the ownership types, future research should explore the founding structure of the firm beyond founding families. In our study, we focused on founding families and family firms, but single owner/founder firms should also be examined. This line of inquiry could yield interesting results when examining single owner/founder firms and ownership types when examining CSR performance.

Another limitation of this study is that we utilized secondary data. Future research should conduct studies, such as a survey or a qualitative study, to investigate why family owned and operated firms experience a higher level of CSR performance compared with companies that do not have similar ownership structures. Future research will also benefit from combining different research methods (e.g., adding survey results to secondary data). In addition, such research should be able to address the various institutional owners and identify their interests in CSR activities.

Another limitation is that we did not account for other types of stakeholders and their influences on the decisions to invest in CSR in these firms. Future research should examine whether there are other stakeholders (e.g., buyers, suppliers, competitors, environmental organizations) that drive CSR investments and performance. These other types of external influence could help explain the findings we have with regard to the negative effects dedicated institutional owners have on CSR performance.

We believe our study provides a foundation for several areas for future research. First, future research should investigate a dynamic model of ownership type and CSR performance. A dynamic model indicates that “[t]he choice of strategy is a series of ever-changing games in which the position in one game can influence, but does not determine, the position in the next one” (Porter, 1991, p. 110). We can think of the dynamic model as a model where owner structure influences CSR performance, and where CSR performance influences owner structure through the feedback loop. Connelly and his colleagues (Connelly et al., 2010) advocate that ownership is not exogenous to the firm, but it can also be the result of a firm’s strategy. Most extant research has shown that owners influence firm strategy, but it is also possible that different firms attract certain type of owners. In this vein, firms can use high CSR performance to signal to the owners that they conform to a society’s expectation. Signaling theory is primarily useful in a context where information asymmetry exists (Spence, 2002) and when information is costly to gather and imitate (Certo, 2003). As CSR performance cannot be measured by concrete financial terms, firms have the motivation (or lack of it) to signal their CSR performance to their owners. This signal can indicate legitimacy and firm quality. On the other hand, signaling theory also predicts that different receivers will perceive and interpret signals differently. Complementary to multiple agency theory, as different principals have competing interests, principals will perceive the same CSR performance through different lenses, thus leading to differing interpretations of that performance.

Building on this notion, future research should also examine whether different ownership types have an influence on the types of signals sent by a firm with regard to CSR activities. Do firms that are more heavily invested by transient institutional owners signal that they are pursuing more CSR activities to create short-term stock growth as compared with those that have a higher stake of dedicated owners?

A focus on dedicated owners may provide another avenue for future research. Our results show that they have a negative influence on CSR performance (by increasing CSR concerns). This is a counterintuitive result given the expectations from the hypothesized relationship. Future studies should focus on dedicated owners and further explore why they do not positively influence CSR performance. It may be that dedicated owners are still committed to the long-term investment opportunities of family and non-family firms, but are still profit oriented, thus not considering CSR investments as beneficial to growing their investments over that long term. In short, we believe that there are many interesting research questions that we can explore in family firms and CSR. Our study is only the first attempt and we believe we have contributed to both fields.

Conclusion

This study is one of the first studies to examine ownership type (family owner, dedicated institutional owner, and transient institutional owner) on CSR performance. Our findings suggest that firms with a preponderance of family ownership and firms managed by a family CEO result in an increased level of CSR strengths. The presence of a family CEO and the founding family lead to lower CSR concerns. These findings suggest that family members may behave as stewards of the firm, and they are more interested in the socioeconomic wealth that is derived from CSR activities. As predicted, we also found that transient owners reduce a firm’s CSR strengths. Conversely, we found that dedicated institutional owners have a positive influence on CSR concerns. These findings do lend credence to the notion that multiple agency theory is in play. They show that different principals have different goals, and even different agents have different goals, in particular when it comes to CSR outcomes.

Footnotes

Acknowledgements

We would like to express our gratitude for the guidance and helpful comments from the associate editor, Stephen Pavelin, and three anonymous reviewers. In particular, one reviewer provided many thoughtful suggestions that really improved the clarity of this article. We also deeply appreciate Michael Withers and David Sirmon for their reviews and recommendations on earlier drafts of 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

Nai H. Lamb (PhD, Texas A&M University) is an assistant professor of management at the University of Tennessee at Chattanooga, College of Business. Her research interests focus on topics such as corporate social responsibility, corporate governance, board interlocks, and social networks. Her research has been published or accepted in Journal of Economics and Finance Education, Management in Africa: Macro and Micro Perspectives, Management Research Review, and the Oxford Handbook of Corporate Governance.

Frank C. Butler (PhD, Florida State University) is a UC Foundation associate professor of management at the University of Tennessee at Chattanooga, College of Business. His primary research interests focus on mergers and acquisitions and corporate governance issues. His articles have been published in journals such as Business Horizons, Journal of Management, and Journal of Managerial Issues.

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