SHAREHOLDER VALUE, STAKEHOLDER MANAGEMENT, AND SOCIAL

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Transcript of SHAREHOLDER VALUE, STAKEHOLDER MANAGEMENT, AND SOCIAL

SHAREHOLDER VALUE, STAKEHOLDER MANAGEMENT, AND SOCIAL ISSUES: WHAT'S THE BOTTOM LINE?AMY J. HILLMAN* and GERALDD . KEIM Ivey School of Business, University of Western Ontario, London, Ontario, Canada : ( ) M2010516

2010.03.24

ABSTRACTWe test the relationship between shareholder value( ), stakeholder management( ), and social issue( ) participation. Using corporate resources for social issues not related to primary stakeholders may not create value for shareholders. We test these propositions with data from S&P 500 firms and find evidence that stakeholder management leads to improved shareholder value, while social issue participation is negatively associated with shareholder value.

KEY WORDSshareholder value; Benefit for the shareholder. A shareholder value oriented company policy aims at a fair rate of return for its shares. stakeholder management; is the systematic identification, analysis and planning of actions to communicate with, negotiate with and influence stakeholders. Stakeholders are all those who have an interest or role in the project or are impacted by the project. social issues; Social issues are matters which directly or indirectly affect many or all members of a society and are considered to be problems, controversies related to moral values, or both. market value added; A calculation that shows the difference between the market value of a company and the capital contributed by investors (both bondholders and shareholders). In other words, it is the sum of all capital claims held against the company plus the market value of debt and equity. primary stakeholders: employees, customers, suppliers, and communities

I

IPrevious literature has studied the relationship between firm financial performance and firm social responsibility or social performance (e.g., Aupperle, Carroll, and Hatfield, 1985; Griffin and Mahon, 1997; McGuire, Sundgren, and Schneeweis, 1988; Pava and Krausz, 1996; Waddock and Graves, 1997a) but to date there is no clear empirical relationship

Firm financial performance

Firm social responsibility/per formance

The relationship between social performance and financial performance may be better understood by separating social performance into two components: stakeholder management and social issue participation. Corporate social performance (CSP) is a multidimensional construct (Carroll, 1979) that is related to stakeholder management although not synonymous (Clarkson, 1995).

Stakeholder Social Performance Management Social Issue Participation

Building better relations with primary stakeholders like employees, customers, suppliers, and communities (Freeman, 1984) could lead to increased financial returns by helping firms develop intangible but valuable assets which can be sources of competitive advantage.