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Corporate social performance and geographical

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DOI: 10.1016/j.jbusres.2006.04.001

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 Journal of Business Research 59 (2006) 1025 1034

Corporate social performance and geographical diversification

Stephen J. Brammer a , Stephen Pavelin b,, Lynda A. Porter c
a
University of Bath, United Kingdom
b
Economics Department, University of Reading, Reading, UKRG6 6AA, United Kingdom
c
University of Reading, United Kingdom
Received 1 April 2005; received in revised form 1 November 2005; accepted 1 April 2006

Abstract

This paper investigates an under-researched relationship, that between corporate social performance (CSP) and geographical diversification.
Drawing upon the institutional and stakeholder perspectives and utilising data on a sample of large UK firms, we develop a set of empirical models
of CSP, and find evidence of a significant contemporaneous positive relationship between the two for some types of social performance and in
some regions of the world. Specifically, the dispersion of activities is associated with improvements in community performance so long as
operations do not extend to Eastern Europe, and with improvements in environmental performance in so far as operations extend to Western, but
not Eastern, Europe. However, we find that geographical diversification has no impact on employee-related aspects of social performance, i.e. the
relationship between geographical diversification and social performance varies significantly across different components of social performance.
Overall, we provide evidence that firms shape their social performance strategies to their geographical profile.
2006 Elsevier Inc. All rights reserved.

Keywords: Corporate social performance; Geographical diversification; Multinational firms

1. Introduction globalization has increased calls for corporations to use firms'

In recent years, corporate social performance (CSP) has
become an increasingly visible and focal component of the
overall performance of business organizations. Companies face
significant pressures from stakeholders such as customers,
employees, and socially responsible investors to demonstrate
their commitment to society and, in many cases, have made
considerable contributions to the resolution of a wide range of
social and environmental issues (Margolis and Walsh, 2004;
Hillman and Keim, 2001; Rowley and Berman, 2000; Menguc
and Ozanne, 2005). Among other factors, the geographical
scope of many large and multinational business organizations
and the increasing interdependence of international economies
have often been cited as important influences on the social
performance of companies (e.g. Christmann, 2004; Carroll,
2004; Caruso and Singh, 2003; Vogel, 1992; Sharfman et al.,
2004; Dowell et al., 2000; Kostova and Zaheer, 1999; Vernon,
1998). For example, Hillman and Keim (2001) assert that,
Corresponding author. Tel.: +44 118 3785073.
E-mail address: s.pavelin@reading.ac.uk (S. Pavelin).
0148-2963/$ - see front matter 2006 Elsevier Inc. All rights reserved.
doi:10.1016/j.jbusres.2006.04.001
resources to help alleviate a wide variety of social problems,
while Johnson and Greening (1999) highlight the, emergence
of a hypercompetitive global marketplace and increased contact
and pressure for accountability from a multitude of external and
internal stakeholders.
The stakeholder perspective has become a core conceptual
approach within the business and society arena through its
emphasis on the linkages between business organizations and
wider constituencies within society (see, for example, Hillman
and Keim, 2001; Mitchell et al., 1997). Multinational corpora-
tions (hereafter, MNCs) have larger and more varied stakeholder
constituencies than uninational companies and the formulation
of social responsiveness strategies within MNCs is likely to be
influenced by the nature and extent of the internationalisation
process that the firm has undertaken (Perlmutter, 1969; Kostova
and Zaheer, 1999; Bartlett and Ghoshal, 1989). MNCs face a
choice between exporting home-country standards of social
responsibility to host countries, adopting host-country standards
in each of the nations in which they operate, or some mixture of
the two (Carroll, 2004; Donaldson and Dunfee, 1999;
Christmann, 2004). To some extent, MNCs have considerable
1026 S.J. Brammer et al. / Journal of Business Research 59 (2006) 10251034
discretion in determining the scope, extent, and timing of their
social performance in geographically separated regions (Acker-
man, 1973; Gladwin and Walter, 1976). However, the
globalization of both consumption and media exposure, the
institutionalization of pressure for international environmental
and labour standards, and the efficiencies gained from
implementing standardised global practices have created
significant interdependencies between corporate behaviour in
disparate geographical areas and an imperative for MNCs to
behave similarly in all locations (Dowell et al., 2000).
Despite the widespread recognition that the geographical
scope of organizations may play a role in influencing their
social performance, very little systematic analysis of the link
between corporate geographical diversification and social
performance has been undertaken. In one of only very few
systematic studies of the link between geographical diversifi-
cation and CSP to date, Simerly and Li (2000) analyse the link
between firm multinationality and CSP within a sample of 350
US corporations in 1991 and 1996 using a CSP construct
derived from data provided by Kinder, Lydenberg, and Domini
(KLD). They find no evidence of a contemporaneous
relationship between firm multinationality, measured by the
proportion of total revenues attributable to non-domestic
activity, and CSP, but find a significant and positive relationship
between prior multinationality and CSP. However, this analysis
suffers from a number of methodological weaknesses. Most
notably, the measure of geographical diversification fails to
capture several significant dimensions of geographical diversi-
fication, and fails to separate CSP into its component parts.
This paper makes two particular contributions to the existing
literature. First, by drawing upon the institutional and
stakeholder perspectives, we develop a set of empirical models
that examine the link between geographical diversification and
CSP within a framework that controls for other firm and
industry attributes. This represents one of the first systematic
analyses of the links between corporate social performance and
geographical diversification, and the first to treat CSP as a
multidimensional construct (Carroll, 1979; Griffin and Mahon,
1997). In so doing, we explore the interface between two
increasingly significant components of corporate strategy,
internationalisation and social responsiveness, and shed light
on both the mechanisms by which geographical diversification
is related to social performance and the extent to which they
operate symmetrically across different dimensions of CSP.
Second, our empirical analysis distinguishes between two
dimensions of corporate geographical diversification: the
number of countries a firm is active in and its presence in
particular geographical regions. Through this, we identify
whether any effect on CSP is exerted by either one or both of
these dimensions. In determining CSP, is the number of
countries over which activities are dispersed, or the exposure
to institutional, economic or political pressures associated with
a presence in specific regions, important? Are both, or perhaps
neither, important? The analysis employs a dataset that covers a
sample of over 400 UK PLCs, derived from information drawn
from published company accounts and social performance data
obtained from the Ethical Investment Research Service (EIRIS).
The next section develops our hypotheses regarding the link
between corporate social performance and geographical
diversification. The data and empirical methodology are
described in Section 3, and results are described in Section 4.
The final section offers some concluding remarks.
2. The link between CSP and geographical diversification
According to the Stakeholder theory, a firm's financial
success is contingent on an ability to formulate and execute a
corporate strategy that manages effectively its relationships with
stakeholders (Mitchell et al., 1997; Donaldson and Preston,
1995; Jones, 1995). We hypothesize that geographical diversi-
fication tends to systematically transform the stakeholder
environment that a firm faces, and that firms tend to tailor
their engagement in CSP-related activities in light of this
transformation. The basic point is that geographical diversifi-
cation tends to increase the number and diversity of stakeholder
pressures in the firm's external environment that arise because
of social, cultural, legal, regulatory, and economic variations
between countries (Sharfman et al., 2004). Many of these
pressures are associated with corporate social performance
(Sharfman et al., 2004; Simerly and Li, 2000; Simerly, 1997).
By entering a foreign market through local production, a firm
necessarily makes foreign employees, foreign customers and
foreign regulators and other government bodies, among others,
salient stakeholder groups as firms internationalise, they
make their stakeholder environment more international, diverse,
and more heavily populated.
The expectations of these stakeholders, particularly legisla-
tors and regulators, concerning the social and environmental
performance of companies have grown significantly in recent
years, but at different rates and with varying emphases across
countries (Sharfman et al., 2004; Hoffman, 1999). This
diversity of pressure to consider social and environmental
issues often drives multinational companies to adopt global
standards and policies that for managing their social responsi-
bilities because doing so is an efficient response to the presence
of varied expectations (Sharfman et al., 2004; Kostova and
Zaheer, 1999). These standards are commonly characterised by
a high level of performance both because this enables
companies to be certain that they at least meet the expectations
of any local constituency and since good performance hedges
against uncertainty in the level of future expectations of the
company (Sharfman et al., 2004; Kostova and Zaheer, 1999;
Aragn-Correa and Sharma, 2003). Recent contributions have
also argued that large multinational companies may be
vulnerable to law suits in their home countries for poor social
and environmental performance overseas reinforcing the need
for multinationals to develop and implement good social and
environmental performance (Schrage, 2003).
In contrast to the views expressed above, a significant body
of literature has highlighted that if the intensity of stakeholder
pressure for CSP varies from country to country, MNCs may
select locations in such a way as to minimise, or at least dilute,
the strength of such pressure exerted on the firm as a whole
(Simerly and Li, 2000; Daly, 1994; Korten, 1995; Vernon, 1992;
 S.J. Brammer et al. / Journal of Business Research 59 (2006) 10251034
Gladwin et al., 1995; Greider, 1997; Palley, 2002). To the extent
that location decisions are driven by an ability to distance their
operations from relatively strenuous demands in their home
country (and some other countries) for investment in commu-
nities, employee health and safety and/or environmental
protection, the resulting pattern of geographical diversification
would be expected to result in international firms being subject
to less, rather than more, stakeholder pressure to demonstrate
social performance (Simerly and Li, 2000). However, on
balance and reflecting the earlier arguments, we propose the
following hypothesis:
Hypothesis 1. The more geographically diversified a firm's
operations, the better is its social performance.
It is important to acknowledge that CSP is fundamentally
multi-dimensional. In our empirical analysis, we will disaggre-
gate social performance according to its focus upon commu-
nities, employees or the environment. We will permit these
different parts of CSP to be differently determined by a range of
firm characteristics, including geographical diversification. In
doing so, we acknowledge variation in the character of these
behaviours, and particularly in the associated degree of strategic
discretion. Owing to the raft of regulations that surround the
working conditions of employees, most notably regarding
health and safety, employee performance is largely determined
by the degree of compliance. The other dimensions of CSP are
far less heavily regulated, which leaves far greater scope for
firms to tailor their CSP activities to meet the demands of their
particular stakeholder environment.
Of the other two components, environmental performance is
the more regulated, but only to an extent which is widely
perceived to be minimal (Weiss, 1994; Choucri, 1993; Sharf-
man et al., 2004). As a result, in order to demonstrate creditable
environmental performance, a firm must exceed mere compli-
ance with regulatory constraints. In the sphere of employee
health and safety, regulatory standards are perceived to be set
somewhat higher, and compliance is deemed to imply relatively
better CSP. As the imperative to comply falls equally on all
firms, one would expect employee performance to vary with
characteristics of firms' stakeholder environments, including
the degree of geographical diversification, to a lesser extent than
the other, more discretionary, parts of CSP.
Hypothesis 2. The effect of geographical diversification on
social performance is stronger for community and environmen-
tal performance than for employee performance.
In describing the influence of geographical diversification on
a firm's stakeholder environment, one should acknowledge the
potential role not only for the overall extent of diversification,
but also for the presence in, or absence from, particular regions
of the world (Gnyawali, 1996). Such a role may spring from
significant variation in the characters of regional stakeholder
environments and/or a tendency for the salience of particular
stakeholder issues to be increased by a presence in particular
regions. In the first case, a regional presence is liable to increase
stakeholder pressure regarding those issues perceived to be
most important to local stakeholder constituencies in that region
1027
(Welford, 2004; Maignan and Ralston, 2002; Bennett, 1998).
By contrast, in the latter case, a regional presence is liable to
increase stakeholder pressure regarding those issues generally
perceived, by the firm's entire stakeholder constituency, to be
most relevant to that region.
For example, with a presence in the developing world, a firm
may encounter little pressure to demonstrate social performance
from local stakeholder constituencies, for whom financial
imperatives are overriding. However, such a firm may
experience generally increased concerns over CSP from
stakeholders (including those in the UK) due to the plurality
of controversial issues that surround the operations of
multinational businesses in the developing world (de Jongh,
2004; Banerjee, 2001). More generally, we wish to draw a
distinction between region-specific stakeholder preferences for
social performance and region-specific social issues, and assert
that the international patterns of the two are starkly different.
Corporate social responsibility has received by far the greatest
level of attention in the developed world and in Western Europe
particularly (Welford, 2004; Bennett, 1998; Sharfman et al.,
2004). However, the most highly-focal, region-specific social
issues for business relate disproportionately to the developing
world (Christian Aid, 2004), e.g. poverty, inequality, corruption,
war and child labour.
Thus, we propose Hypotheses 3 and 4 to capture these two
possible mechanisms through which the location of diversified
operations may impact on CSP. Underlying them is a broad, and
simplistic, characterisation of the stakeholder preferences for
social performance in, and highly-focal social issues associated
with, the geographical regions defined in our empirical analysis
reported in subsequent sections. For these purposes, we
characterise Western Europe, North America and Australasia
as highly developed; Central and South America, Africa and
Central Asia are characterised as developing regions. Further-
more, we associate these developed regions with the most
pronounced stakeholder preferences for social performance, and
associate these developing regions with the greatest general
concern regarding highly-focal social issues.
Hypothesis 3. Social performance varies across firms accord-
ing to the pressures to demonstrate CSP found among local
stakeholder constituencies in the geographical regions in which
each firm is present.
Hypothesis 4. Social performance varies across firms accord-
ing to the presence of highly-focal social issues relating with the
geographical regions in which each firm is present.
2.1. Other determinants of corporate social performance
While the focus here is upon the nature of the relationship
between corporate geographical diversification and social
performance, CSP is determined by many factors and one
must control for these factors accordingly. Drawing upon the
conceptual framework outlined previously, and the findings of
previous empirical studies, we will consider a range of firm
attributes including measures of financial performance (Wad-
dock and Graves, 1997; Adams and Hardwick, 1998; Mills and
1028 S.J. Brammer et al. / Journal of Business Research 59 (2006) 10251034
Gardner, 1984), firm size (Waddock and Graves, 1997; Adams
and Hardwick, 1998), R&D and advertising intensity, and the
composition of both the main board and ownership (Johnson
and Greening, 1999; Ryan and Schneider, 2002). Also, even
controlling for these firm attributes, social performance may
vary systematically across sectors.
3. Method
The starting point for the sample is the FTSE AllShare index,
a market capitalization weighted index of the largest companies
listed on the London Stock Exchange (LSE) which includes
over 98% of the total capitalization of the LSE. A lack of data
for some variables, principally relating to firm-level geograph-
ical diversification (see below) reduces our final sample to 420
companies which are drawn from a wide range of industrial
sectors, and includes around two-thirds of FTSE All-Share
companies.
3.1. Dependent variables: social performance
CSP is a fundamentally multidimensional construct (e.g.
Carroll, 1979), and a large number of relevant dimensions have
been identified in existing studies. For example, several studies
have identified dimensions of social performance that relate to
employee relations, community relations, issues concerned with
women and minorities, environmental responsibility, and
product safety (e.g. Hillman and Keim, 2001; Griffin and
Mahon, 1997; Johnson and Greening, 1999). These, and some
other, operationalizations of the CSP construct fundamentally
derive from the identity of the particular stakeholders (employ-
ees, customers, communities, the environment) being addressed
by the firm's behaviour. In a similar way, our measures focus on
firm behaviour towards salient stakeholder groups. The social
performance data we analyse were obtained from the Ethical
Investment Research Service (EIRIS), who specialise in the
measurement of corporate social performance against a
consistent and objective set of criteria, principally for the
consumption of investors. They offer the largest and most
complete multidimensional social performance coverage of UK
firms, covering issues relating to employment, the environment,
community, human rights and supply chain management. Due
to the limited availability of data regarding the last two of these,
we will restrict our attention to the first three dimensions of
social performance.
EIRIS use publicly available information, such as annual
reports and company publications, in addition to direct surveys
of sample companies to construct a set of relatively objective
criteria relating to corporate social impacts and their manage-
ment. These criteria are used to devise ratings of broad
dimensions of social responsiveness. For example, the indicator
of employee responsibility is based upon five separate
components relating to health and safety systems, training and
development, equal opportunities practices, employee relations
and job creation and security, each of which is, in turn based on
a wide range of objective criteria. EIRIS provide a text-grade
rating for each component (e.g. the quality of equal opportunity
systems) and, following the general approach used by Graves
and Waddock (1994) for KLD data, we translated these into a
number-grade rating. For each area of social performance, text
rating schemes are constructed to reflect the underlying data.
For example, the text rating for the quality of equal opportunity
systems ranges from little or no evidence of such systems,
which is reflected in a firm's inability to provide information on
factors such as employee demography or flexible working
arrangements, to very clear evidence of systems as reflected
in the presence of assigned responsibility for equal opportuni-
ties to a senior manager, policy monitoring, a percentage of
women and minority managers that is at least four fifths the
figure for the percentage of these groups in its workforce as a
whole, and the provision of a wide range of flexible working
arrangements.
In a similar manner, we construct indicators of environmen-
tal (based upon four separate components relating to the quality
of environmental policies, systems, reporting and performance)
and community responsiveness (a single item). Reflecting the
number of text categories available for each component, we
coded each of the environment text scales into five point scales,
each of the employee responsibility text scales into three point
scales and created a four point scale for community respon-
siveness. In each case, the codes begin with a value of one and
larger numbers indicate better social performance. To summa-
rise, our measures of the three dimensions of social performance
are: community performance graded 1 to 4; environmental
performance: policies, systems, reporting, and performance;
each category graded 1 to 5. Environmental impact score out of
20. Employee performance: health and safety, training and
development, equal opportunities, employee relations, job
creation, and job security; each category graded 1 to 3.
Employment responsibility score out of 18. To arrive at a single
aggregate measure (termed social performance) we summed the
three scores having normalised each to a 1 to 4 grading. This
generates an overall score out of 12.
3.2. Independent variables: geographical diversification
Our measures of geographical diversification are derived
from the 2002 Annual Reports of the companies included in our
sample. UK listed firms are not required to report the
distribution of their global activity in a consistent manner. In
practice, many firms do report breakdowns of their revenues
across geographical regions but both the incidence of such
reporting and the consistency in the definition of regions are
insufficient to implement such a measure in an unbiased
manner. In light of this, we measure the extent of a firm's
geographical diversification as the total number of countries
listed among the countries of operation (or the country of
incorporation where this is not given) of the firm's principal
subsidiaries, as listed in the notes to the accounts. Furthermore,
the spread of each firm's operations across regions of the world
is described by a set of binary variables (that each take a value
of one if the firm's list of countries, as derived using the method
described above, includes a country within the relevant region,
and zero otherwise). We construct a binary variable for each of
 S.J. Brammer et al. / Journal of Business Research 59 (2006) 10251034
the following regions: Western Europe; Eastern Europe; North
America; Central and South America; Africa; Middle East;
Central Asia; East Asia; Australasia. Countries are allocated to
each of these regions according to the classification given in the
Appendix.
3.3. Control variables
A measure of each firm's size (the natural logarithm of the
value of total assets), principle business activity (approximately
equivalent to the three-digit NACE industry), firm profitability
(measured by the ratio of pre-tax profits to total assets), R&D
intensity (the ratio of R&D expenditures to sales), corporate
leverage (measured by the ratio of total debt to total assets) and
the number of non-executive directors were extracted from
accounting data courtesy of Datastream. Using the Datastream
industry classification, we allocated each firm to one of six
sectors: construction; consumer manufacturing; consumer
services; energy and water; producer manufacturing; producer
services.
Absence of a statutory obligation to disclose such expendi-
tures, firm-level advertising data are difficult to obtain for UK
firms. However, media research agencies monitor the incidence
of advertisements at the brand level throughout the main
advertising media (TV, newspapers, magazines, radio, posters,
etc.) and estimate the levels of expenditure incurred. We
construct a dummy variable on the basis of identification, by
Marketing magazine in 2002, of a firm as one of the Top 100
Advertisers or as an owner of one of the Biggest Brands in the
UK. Given that the levels of expenditure on advertising tail off
dramatically at the foot of these rankings we are confident that
our methodology allows us to capture the vast majority of the
firms for which advertising is a key competitive tool.
Ownership data were drawn in June 2002 from a share
ownership analysis database of more than 2000 listed UK firms
managed by one of the UK's largest company registrars.
Derived from records of share trading on the London Stock
Exchange, the database disaggregates share ownership accord-
ing to 32 different types of beneficial owner. Following, Ryan
and Schneider (2002) and Johnson and Greening (1999), we
employ a variable that equals the sum of the proportions of firm
equity held by long-term institutional investor groups, i.e.
pension funds, insurance companies and life assurors.
3.4. Measurement relative to sectoral means
To control for possible sectoral effects, we subtract the sector
average of all variables (both dependent and independent, and
including those initially constructed as binary variables) from
their respective firm counterparts.
4. Results
The findings include OLS regression results for econometric
models of corporate social performance that incorporates the
explanatory variables described in the previous section. Table 1
presents descriptive statistics and a correlation matrix for key
1029
variables. Tests for econometric problems a ??DurbinWu
Hausman test for simultaneity in the relationship between
corporate financial performance and social performance (as
suggested in Davidson and MacKinnon, 1993); BreuschPagan
tests for heteroscedasticity; and the use of variance inflation
factors (VIFs), which are all below 2.5, are reported in Table 1)
to detect multicollinearity provide no evidence of their
presence. Nevertheless, as a precaution against undetected
heteroscedasticity, we employ White's method to correct for
any associated bias in statistical inference.
Table 2 presents the results for four specifications that differ
according to the dependent variable. In the first we employ the
aggregate measure of social performance, in each of the last
three we employ each of the components of social performance:
community, employee and environmental performance. In all
four of these specifications, the set of explanatory variables is
the same.
In regression 1, we find a significant positive effect on
corporate social performance associated with a greater disper-
sion of a firm's operations across foreign countries (p = 0.031).
In regressions 2, 3 and 4, we find the positive effect of
geographical diversification to be present for only community
(p = 0.031) and environmental performance (p = 0.022). Thus,
Table 2 shows that the determinants of social performance vary
significantly across components. Specifically regarding the role
of geographical diversification, the general effect on social
performance (as given in regression 1) is shown to reflect
corresponding effects on community and environmental
performance (regressions 2 and 4), but not employee perfor-
mance (regression 3). In Table 3, we extend our analysis of the
effect on CSP of the geographical diversification of operations
by including dummy variables that indicate the firms' presence
in each of a set of regions. The overall importance of
geographical diversification for social performance is reflected
in the fact that the ten geographical diversification variables are
(according to an F-test with df = 10,403) highly jointly
significant in determining community (p = 0.009) and environ-
mental performance (p = 0.002) but not employee performance
(p = 0.623).
More specifically, regarding community performance, geo-
graphical diversification exerts a positive general influence, but
we find a countervailing negative effect if the firm is active in
Eastern Europe. In contrast, geographical diversification exerts
no significant influence on employee performance, neither in
general nor according to presence in particular regions.
Regarding environmental performance, geographical diversifi-
cation exerts no significant general influence, but we find
countervailing effects relating to regional presence: a positive
effect associated with Western Europe; a negative effect
associated with Eastern Europe. The variation across the
components of CSP in the role played by geographical
diversification and regional presence, and some other determi-
nants, justifies the separate estimation of each component. For
this reason, we select regressions 6, 7 and 8 as the most suitable
set of model specifications.
Therefore, the evidence regarding Hypothesis 1 is somewhat
mixed. We find support for Hypothesis 1 (that the more
1030 S.J. Brammer et al. / Journal of Business Research 59 (2006) 10251034

Table 1
Descriptive statistics and correlation matrix
Variable SD Min Max VIF Correlation matrix
i ii iii iv v vi vii viii
i Social perfomance 2.29 4.59 6.32
ii Community performance 0.91 1.46 2.24 0.890b
iii Employee performance 3.79 6.08 9.21 0.820b 0.634b
iv Environmental performance 3.19 6.35 8.91 0.911b 0.690b 0.633b
v Firm size 1.55 3.81 5.60 2.43 0.642b 0.582b 0.414b 0.642b
vi Financial performance 16.3 174 29.3 1.24 0.092 0.054 0.092 0.099a 0.022
vii Leverage 17.5 28.5 74.5 1.17 0.141b 0.139b 0.088 0.133b 0.295b 0.002
viii Non-executive directors 10.6 27.1 30.1 1.56 0.398b 0.383b 0.256b 0.380b 0.557b 0.004 0.127b
ix Institutional ownership 1.86 4.82 9.42 1.26 0.333b 0.284b 0.291b 0.303b 0.377b 0.178b 0.117a 0.131b
x R&D intensity 6.40 4.99 76.2 1.28 0.079 0.050 0.048 0.099a 0.228b 0.328b 0.198b 0.003
xi Advertising intensity 0.25 0.17 0.97 1.21 0.316b 0.300b 0.197b 0.318b 0.387b 0.026 0.093 0.234b
xii Geographical diversification 11.0 10.6 135 2.32 0.307b 0.289b 0.173b 0.312b 0.370b 0.086 0.051 0.244b
xiii Western Europe 0.45 0.83 0.64 1.41 0.251b 0.236b 0.106a 0.278b 0.285b 0.043 0.076 0.166b
xiv Eastern Europe 0.38 0.31 0.90 1.44 0.091 0.074 0.037 0.111a 0.236b 0.073 0.080 0.133b
xv North America 0.46 0.91 0.63 1.39 0.202b 0.198b 0.118a 0.196b 0.279b 0.069 0.075 0.195b
xvi Central and South America 0.35 0.41 0.96 1.76 0.278b 0.245b 0.159b 0.295b 0.340b 0.099a 0.088 0.233b
xvii Africa 0.36 0.32 0.94 1.51 0.135b 0.150b 0.058 0.130b 0.152b 0.044 0.015 0.196b
xviii Middle East 0.25 0.23 0.98 1.19 0.075 0.047 0.006 0.117a 0.126b 0.087 0.048 0.084
xix Central Asia 0.32 0.28 0.99 1.59 0.206b 0.195b 0.125a 0.204b 0.200b 0.095 0.050 0.202b
xx East Asia 0.45 0.62 0.89 1.68 0.203b 0.196b 0.088 0.218b 0.215b 0.003 0.007 0.194b
xxi Australasia 0.43 0.44 0.91 1.55 0.208b 0.170b 0.101a 0.243b 0.238b 0.100a 0.021 0.211b
N.B. Owingmatrix
Correlation to their measurement relative to sectoral averages, the mean of all variables is zero.
a
and b indicate that the correlation coefficient is significantly different from zero at a 95% and 99% level of confidence, respectively.
ix x xi xii xiii xiv xv xvi xvii xviii xix xx
Some units of measurement: (v) the natural logarithm of the value of total assets; (vi) the ratio of pre-tax profits to total assets; (vii) the ratio of total debt of total assets;
(ix) the percentage of firm equity held by institutional investors; (x) the ratio of R&D expenditures to total assets (as a percentage).

geographically diversified are a firm's operations, the better is from Eastern Europe. As the negative effect of a presence in
its social performance), but only for some types of social Eastern Europe is around forty times greater than the positive
performance and for some geographical regions. A positive effect of a presence in each foreign country, we can be sure that
effect on community performance is associated with the a firm's presence in Eastern European countries has a negative
dispersion of operations across countries in all regions apart net effect on expected community performance (as such
countries number less than forty) this provides some limited
Table 2 evidence contrary to Hypothesis 1, that the more geographically
Regression results without regional dummy variables diversified are a firm's operations, the worse is its social
Variable Model specification performance.
1 2 3 4 For environmental performance, we find has no effect
Dependent variable
associated with the overall extent to which a firm's operations
are dispersed across countries. Rather, the effect of geograph-
Social Community Employee Environmental
ical diversification is restricted to the character of the firm's
performance performance performance performance
regional presence, and specifically their presence in Europe.
Firm size 0.812 0.277 0.835 1.187
Activity in Western (Eastern) Europe has a positive (negative)
Financial 0.012 0.003 0.018 0.018
performance effect on expected community performance providing
Leverage 0.004 0.001 0.005 0.008 limited evidence for (against) Hypothesis 1. As the negative
Non-executive 0.058 0.034 0.081 0.030 effect of a presence in Eastern Europe is greater than the
director positive effect of a presence in Western Europe, a firm's
Institutional 0.022 0.007 0.053 0.018
presence in both European regions has a negative net effect on
ownership
R&D intensity 0.032 0.013 0.040 0.036 expected environmental performance. Thus, we find evidence
Advertising 0.742 0.324 0.410 1.049 both in support of, and contrary to, our stated hypothesis,
intensity which in each case is restricted to particular types of social
Geographical 0.014 0.006 0.005 0.022 performance and particular regions of the world, i.e. the effect
diversification
of geographical diversification is conditional upon what type of
1: N = 420; df = 412; Adjusted R-squared = 0.44. CSP is being set and where the firm locates. Also, the absence
2: N = 420; /ce.underline>df = 412; Adjusted R-squared = 0.36. of any such effects for employee performance provides support
3: N = 420; df = 412; Adjusted R-squared = 0.19.
4: N = 420; df = 412; Adjusted R-squared = 0.43. for Hypothesis 2.
and denote significance at the 95% and 99% level of confidence, Hypotheses 3 and 4 relate to the effects on CSP, and each of
respectively. its components, exerted by regional presence. They relate the
 S.J. Brammer et al. / Journal of Business Research 59 (2006) 10251034 1031

ix x xi xii xiii xiv xv xvi xvii xviii xix xx

0.091
0.103a 0.087
0.132b 0.070 0.122a
0.194b 0.066 0.104a 0.361b
0.065 0.119a 0.118a 0.495b 0.301b
0.154b 0.041 0.058 0.323b 0.356b 0.142b
0.163b 0.091 0.088 0.571b 0.227b 0.376b 0.265b
0.031 0.100a 0.068 0.472b 0.207b 0.311b 0.148b 0.400b
0.058 0.004 0.056 0.346b 0.163b 0.145b 0.173b 0.200b 0.221b
0.069 0.094 0.161b 0.479b 0.224b 0.369b 0.158b 0.466b 0.458b 0.128b
0.105a 0.014 0.103a 0.458b 0.413b 0.263b 0.381b 0.408b 0.330b 0.256b 0.335b
0.137b 0.048 0.114a 0.458b 0.336b 0.300b 0.342b 0.319b 0.338b 0.207b 0.340b 0.486b

pattern of influence associated with regional presence to the
expectable patterns across regions regarding local stakeholder
pressure for CSP (Hypothesis 3) and highly-focal social issues
(Hypothesis 4). We find no special tendency for strong (or
weak) social performance, or any component thereof, in those
regions previously characterised as most closely associated with
social issues, i.e. Central and South America, Africa and Central
Asia. We find a presence in these less developed regions to
impart to a firm no significant impetus for better (or worse)
social performance, or indeed community, employee or
environmental performance this contradicts Hypothesis 4.
In contrast, we do find a special tendency for strong
environmental performance in the region primarily associated
with stakeholder pressure for social performance, and environ-
mental performance in particular, i.e. Western Europe. We find a
presence in this region to impart to a firm a significant impetus
for better environmental performance, which gives some
support to Hypothesis 3.
The significance of a presence in Eastern Europe for
community and environmental performance is perhaps a little
surprising. That the region is not associated with a positive
effect on CSP is unsurprising Eastern Europe is not as
closely associated with high profile social issues as some other
regions, and does not harbour a strong preference for CSP
among local stakeholder constituencies. Perhaps, the negative
impact is due to the relative lack compared to elsewhere in
Europe of a local stakeholder preference for CSP. Across our
results as a whole, the importance of regional presence resides
entirely within Europe, and the split between east and west is
broadly coincident with the eastern boundary on the heightened
interest in CSP among key stakeholder groups. As stated above,
this finding lends support to the notion that firms can reduce
their obligation to fulfil localised demands for social perfor-
mance by shifting some part of their operations to foreign
production environments where the stakeholder preference for
CSP is less pronounced thereby providing limited evidence
contrary to Hypothesis 1, but also some support for the
mechanism that underlies Hypothesis 3.
4.1. Other determinants of corporate social performance
In regressions 6, 7 and 8, we find: the positive effect of firm
size to be present for community (p = 0.000), employee
(p = 0.000) and environmental performance (p = 0.000); that for
financial performance to be present for environmental perfor-
mance (p = 0.005); that for long-term institutional ownership to
be present for employee performance (p = 0.001); that for R&D
intensity to be present for community performance (p = 0.020);
that for advertising intensity to be present for community
(p = 0.027) and environmental performance (p = 0.026).
5. Conclusion
An existing body of literature investigates the influences on
CSP and highlights the importance of a range of firm-specific
and business environmental factors that shape CSP (Graves and
Waddock, 1994; Rowley and Berman, 2000; Adams and
Hardwick, 1998). Consistent with this research, our study
highlights the importance of firm size and industry conditions as
influences on CSP. This paper extends this literature by
1032 S.J. Brammer et al. / Journal of Business Research 59 (2006) 10251034

Table 3 support for basic human rights in the workplace) and the
Regression results with regional dummy variables consequent institutionalization of hypernorms to which all
Variable Model specification companies adhere independent of their geographical diversi-
5 6 7 8 fication. In other areas of social performance we find evidence
Dependent variable that geographical diversification plays an important role and
that firms use their discretion by shaping their social
Social Community Employee Environmental
performance performance performance performance performance strategies to their geographical profile. Specifi-
cally, the dispersion of activities is associated with improve-
Firm size 0.817 0.281 0.859 1.180
Financial 0.010 0.003 0.016 0.016
ments in community performance so long as operations do not
performance extend to Eastern Europe and improvements in environmental
Leverage 0.005 0.001 0.006 0.009 performance in so far as operations extend to Western, and not
Non-executive 0.045 0.028 0.075 0.013 Eastern, Europe.
directors Consistent with Hoffman (1999) and Sharfman et al. (2004),
Institutional 0.019 0.006 0.054 0.013
ownership
our findings suggest that region-specific institutional pressures
R&D intensity 0.030 0.012 0.037 0.033 play a significant role in shaping CSP. Region-specific
Advertising 0.739 0.329 0.405 1.030 stakeholder pressure exerts an influence on those firms active
intensity in that region, the voracity and CSP-focus of which are
Geographical 0.018 0.009 0.024 0.015 determined by the preferences of local stakeholders. The
diversification
Western Europe 0.345 0.137 0.152 0.700
incidence of pressure for CSP does not appear to be affected
Eastern Europe 0.873 0.355 0.905 1.103 by any associations between a firm and highly-focal social
North America 0.150 0.013 0.052 0.386 issues that may arise due to the firm's presence in geographical
Central and 0.231 0.018 0.030 0.625 regions commonly linked to such issues. For example, despite
South America the relative plurality of legitimacy threats concerning social and
Africa 0.028 0.088 0.168 0.264
Middle East 0.338 0.244 0.823 0.130
environmental issues in South America, Africa, and the Middle
Central Asia 0.396 0.145 0.689 0.409 East, a presence in Western Europe grants a greater impetus for
East Asia 0.070 0.057 0.061 0.069 good environmental performance than does a presence in those
Australasia 0.040 0.073 0.127 0.408 regions. This suggests that institutional pressures that arise in
5: N = 420; df = 403; Adjusted R-squared = 0.45. the context of operations in Western Europe play a more
6: N = 420; df = 403; Adjusted R-squared = 0.37. significant role in shaping environmental responsiveness
7: N = 420; df = 403; Adjusted R-squared = 0.18. strategies than do the legitimacy risks associated with opera-
8: N = 420; df = 403; Adjusted R-squared = 0.44.
and denote significance at the 95% and 99% level of confidence tions in particular (predominantly less-developed) countries.
respectively. The study suffers from a number of limitations: our analysis
is cross-sectional; our social performance data is firm-level and
does not describe any variation across countries or regions in the
investigating the role played by a firm's international business firms' attributes; our measures of geographical diversification
environment in shaping its CSP. Drawing upon the institutional do not describe the type of business activities (e.g. research,
and stakeholder perspectives and utilising data on a sample of sales, manufacturing, or head office functions) carried out by a
large UK firms, we develop a set of empirical models that firm in each country or region. In response to these
examine the link between geographical diversification and CSP observations, future work may seek to extend our analysis in
within a framework that controls for other firm and industry several directions. First, a longitudinal study of the link between
attributes. CSP and geographical diversification would afford a sharper
In contrast to the findings of the only comparable published insight into the relationship between social responsiveness and
study to date (Simerly and Li, 2000), we find evidence for a the process of corporate internationalisation. Second, more
significant and positive contemporaneous link between disaggregated data concerning both CSP and the global
corporate social performance and geographical diversification. distribution of a firm's activities would permit further
Firms whose activity is spread across more countries appear to inspection of the extent to which businesses tailor their CSP
have superior social performance compared to those firms in response to local stakeholder and institutional pressures.
whose activity is more narrowly confined geographically. Thirdly, similar analyses sampling companies from a variety of
However, we find that the overall positive relationship countries would shed further light into the importance of
between geographical diversification and social performance domestic cultural norms in shaping the global social respon-
masks some important heterogeneity that arises from the siveness of multinationals.
differences between components of social performance. Most
strikingly, we find that geographical diversification has no Appendix A. Classification of countries to geographical
impact on employee-related aspects of social performance. regions
This may reflect the presence of comparatively consistent
global moral and ethical standards in the area of labour Western Europe: Andorra; Austria; Belgium; Cyprus; Den-
relations (particularly regarding child employment, slavery and mark; Finland; France; Germany; Greece; Iceland; Ireland;
 S.J. Brammer et al. / Journal of Business Research 59 (2006) 10251034
Italy; Liechtenstein; Luxembourg, Malta; Monaco; Nether-
lands; Norway; Portugal; San Marino; Spain; Sweden; Switzer-
land; United Kingdom; Vatican City.
Eastern Europe: Albania; Armenia; Azerbaijan; Belarus;
Bosnia and Herzegovina; Bulgaria; Croatia; Czech Republic;
Estonia; Georgia; Hungary; Latvia; Lithuania; Macedonia;
Moldova; Poland; Romania; Russian Federation; Serbia and
Montenegro; Slovakia; Slovenia; Turkey; Ukraine.
North America: Antigua and Barbuda; Bahamas; Barbados;
Canada; Cayman Islands; Cuba; Dominica; Dominican Republic;
Grenada; Haiti; Jamaica; St. Kitts and Nevis; St. Lucia; St.
Vincent and the Grenadines; Trinidad and Tobago; United States.
Central and South America: Argentina; Belize; Bolivia;
Brazil; Chile; Colombia; Costa Rica; Ecuador; El Salvador;
Guatemala; Guyana; Honduras; Mexico; Nicaragua; Panama;
Paraguay; Peru; Suriname; Uruguay; Venezuela.
Africa: Algeria; Angola; Benin; Botswana; Burkina; Bur-
undi; Cameroon; Cape Verde; Central African Republic; Chad;
Comoros; Congo DR; Congo; Djibouti; Egypt; Equatorial
Guinea; Eritrea; Ethiopia; Gabon; Gambia; Ghana; Guinea;
Guinea-Bissau; Ivory Coast; Kenya; Lesotho; Liberia; Libya;
Madagascar; Malawi; Mali; Mauritania; Mauritius; Morocco;
Mozambique; Namibia; Niger; Nigeria; Rwanda; Sao Tome and
Principe; Senegal; Seychelles; Sierra Leone; Somalia; South
Africa; Sudan; Swaziland; Tanzania; Togo; Tunisia; Uganda;
Zambia; Zimbabwe.
Middle East: Afghanistan; Bahrain; Brunei; Iran; Iraq; Israel;
Jordan; Kuwait; Lebanon; Oman; Qatar; Saudi Arabia; Syria;
United Arab Emirates; Yemen.
Central Asia: Bhutan; Bangladesh; India; Kazakhstan;
Kyrgyzstan; Nepal; Pakistan; Sri Lanka; Tajikistan; Turkmeni-
stan; Uzbekistan.
East Asia: Burma (Myanmar); Cambodia; China; East
Timor; Indonesia; Japan; Laos; Malaysia; Maldives; Mongolia;
North Korea; Philippines; Singapore; South Korea; Taiwan;
Thailand; Vietnam.
Australasia: Australia; Fiji; Kiribati; Marshall Islands;
Micronesia; Nauru; New Zealand; Palau; Papua New Guinea;
Samoa; Solomon Islands; Tonga; Tuvalu; Vanuatu.
Any countries that do not appear in these lists were allocated
after inspection of an atlas, in a fashion that is consistent with
the broad approach embodied in the lists given above.
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