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

• DOI: http://doi.org/10.1111/basr.12088
• Author: Eri Nakamura
• Published date: 01 June 2016
• Date: 01 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

ERI NAKAMURA

ABSTRACT

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: enakamura@person.kobe-u.ac.jp.

V

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

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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.

INTRODUCTION

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

272 BUSINESS AND SOCIETY REVIEW