Corporate Controversies, Social Responsibility, and Market Performance

Subject Areas : Behavioral reactions in the capital market

Zeinab Mohsenbeigy ¹ , Reza Golami-Jamkarani ² , Mojgan Safa ³

1 - Master's degree, Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran
2 - Associate Professor, Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran
3 - Assistant Professor, Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran

Received: 2024-12-08 Accepted : 2025-01-07 Published : 2025-01-08

Keywords: Corporate Controversy, Social Responsibility, Market Performance.,

Abstract :

Purpose: The objective is to highlight how corporate controversies can jeopardize a company's reputation. In such circumstances, companies are likely to view corporate social responsibility as a form of moral capital and a strategy to restore their lost reputation. In this context, the objective of the current study is to examine the impact of corporate controversy on corporate social responsibility. Furthermore, it aims to explore how both corporate controversy and corporate social responsibility influence the market performance of companies.

Method: This study employs a quantitative, descriptive, quasi-experimental design, incorporating both correlational and library study methodologies. The analysis was conducted on a sample of 128 companies listed on the Tehran Stock Exchange over a period of eight years, from 2015 to 2022, resulting in a total of 1,024 observations. Generalized Least Squares regression was employed to test the hypotheses based on panel data, utilizing fixed effects and conducting pre-regression tests.

Findings: Corporate controversy has a positive and significant impact on corporate social responsibility (CSR). The relationship between the intensity of corporate controversy and a company’s engagement in CSR is characterized by an inverted U-shape; as the level of controversy increases, it initially enhances CSR engagement, but this effect diminishes rapidly as the severity of the controversy escalates.

Conclusion: Corporate controversy has a negative and significant impact on the company's market performance. Conversely, corporate social responsibility (CSR) positively and significantly influences the company's market performance. In the event of controversy, companies attempt to mitigate the damage to their legitimacy, reputation, and stakeholder relationships by engaging in Corporate Social Responsibility (CSR) initiatives. Their primary objective in these efforts is to restore trust and relations with their shareholders. This is effective only up to a certain level of controversy surrounding the company; however, as the level of controversy increases, corporate social responsibility (CSR) activities tend to decrease.

 

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