Is Corporate Social Responsibility in Japanese Firms at the Theoretically Derived Achievable Level? An Analysis of CSR Inefficiency Using a Stochastic Frontier Model

AuthorEri Nakamura
Published date01 June 2016
Date01 June 2016
Is Corporate Social
Responsibility in Japanese
Firms at the Theoretically
Derived Achievable Level? An
Analysis of CSR Inefficiency
Using a Stochastic
Frontier Model
The purposes of this study are to investigate whether cur-
rent corporate social responsibility (CSR) is at the theoret-
ically derived achievable level (hereinafter referred to
simply as achievable level), to introduce “CSR inefficiency”
as the difference between actual and achievable levels of
CSR, and to specify its determinants. We established that
the achievable level of CSR activity is determined by a
range of keiretsu group, government, sector, and resource
factors, and choosing specific activities can affect the pri-
ority levels of social contributions. CSR inefficiency is
affected by its own factors such as internal management,
Eri Nakamura is an Associate Professor of Business Economics and Management. Since join-
ing the faculty of Shinshu University after obtaining a Ph.D. from Kobe University, she has
been engaged in research on corporate investment, performance, and organizational behavior.
She is currently analyzing corporate governance in public utilities. She is currently affiliated
with Kobe University, Graduate School of Business Administration, 2-1, Rokkodai, Nada, Kobe
657-8501, Japan. TEL: 181-78-803-6942, E-mail:
C2016 Center for Business Ethics at Bentley University. Published by Wiley Periodicals, Inc.,
350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK.
Business and Society Review 121:2 271–295
which are different from those of CSR activity. Our study
suggests the importance of the differences between the
achievable levels of CSR among firms. For example, firms
in machinery, electrical equipment, public utilities, and
service industries have greater inefficiency in environmen-
tal CSR than the other industries. Conversely, the achiev-
able levels of construction and petroleum and gum
industries for environmental CSR are higher. Service
firms can achieve higher level of environmental CSR,
although their emissions and wastes are not as large as
those of manufacturing firms in general. In retail indus-
tries, the achievable level of environmental CSR is lowest
among all industries, while those for labor issues and
social contribution are as high as those of other indus-
tries. Public utilities have large CSR inefficiency compared
with other industries, while construction, steel and non-
ferrous metals have small CSR inefficiency.
How much effort should a firm commit to corporate social
responsibility (CSR)? Are firms implementing CSR at a
theoretically derived achievable level? What factors should
be considered to move current CSR closer to this achievable level?
This study attempts to answer these questions.
CSR has become an important issue for firms in recent times, as a
growing number of stakeholders consider it when making invest-
ment, purchase, and partnership decisions. A firm’s management
must decide how much effort to assign to CSR and in what areas.
While CSR facilitates communication with stakeholders and improves
corporate reputation, it also brings additional costs, which result in
higher prices and the risk of losing customers. In addition, stakehold-
ers have difficulty deciding what level of CSR they can demand of a
firm without harming its current status. Although stakeholders have
an important role by influencing CSR policy, most of them will not
know what the correct direction for the firm should be.
To address these issues, this study investigated whether cur-
rently implemented CSR in firms is at an achievable level. It also
attempted to specify the determinants of “CSR inefficiency,” which

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