Foreign subsidiary CSR as a buffer against parent firm reputation risk
This
study examines the influence of parent firm reputation risk on the level of
corporate social responsibility activities of foreign subsidiaries. We first
argue that a strong reputation risk spillover occurs from parent firms to
their foreign subsidiaries due to the high visibility of multinationals, the
control of parent firms over their subsidiaries, and the liability of
foreignness associated with foreign firms in host countries. Then, we argue
that subsidiaries may resort to CSR in their host country to reduce the
spillover effect. Thus, we hypothesize a positive relationship between parent
firm reputation risk and foreign subsidiary CSR activities. Moreover, we
explore several contingency factors at both the parent firm and subsidiary levels
that affect the extent of spillover and the need for subsidiaries to use CSR
as a buffer against parent firm reputation risk. We find that the positive
relationship between parent firm reputation risk and foreign subsidiary CSR
activities is weaker for foreign subsidiaries that directly report to the
parent firm, with longer operations in the host country and larger
institutional distance between host and home countries. Using a unique sample
of subsidiaries of large multinationals in China from 2009 to 2016, we find
general support for our arguments. |