Doing good and/or avoiding bad: The ambidextrous view of managing corporate social activities

Xiong, Jie; Xu, Lu; Li, Qian; Yuan, Zhe; Chakraborty, Shubho

doi:https://doi.org/10.59876/a-6v10-cge4

To improve their corporate social performance (CSP), organizations engage in social activities, which have been widely recognized as a way to enhance corporate financial performance (CFP) (Gras & Krause, 2020). Some social activities generate positive externalities, whereas others avoid negative externalities (Lin-Hi & Müller, 2013). Pioneering research shows that companies engage in corporate social responsibility–oriented activities (pro-CSR) while avoiding socially irresponsible ones (anti-CSiR — where “CSiR” represents “corporate social irresponsibility”) (Kang et al., 2016; Lins et al., 2017). The limited studies on this topic center on marketing (Kang et al., 2016), supply chains (Soundararajan et al., 2018), corruption (Keig et al., 2015), or finance (Lins et al., 2017), with little attention given to the strategic management perspective.

More broadly, the empirical findings on the impact of CSR on corporate economic goals are mixed (McWilliams & Siegel, 2001; Kang et al., 2016). This disparity needs greater emphasis on the potential causation between corporate social activities (CSA) and their economic repercussions. The firm’s corporate social responsibility (CSR) decision is followed by their corporate social activity (CSA) (Carroll, 1979). Once their CSR has been defined, the CSA can be identified “to which these responsibilities are tied, such as consumerism, environment, employment discrimination, product safety, occupational safety and health, etc.” (Tesfom & Birch, 2014, p.15). CSA is an organization’s chosen CSR practices.

Established literature recognizes the ambidexterity and paradoxical view of corporations addressing social concerns, such as Hahn et al. (2016), who contend that while engaging in corporate social activities, enterprises may follow both instrumental and moral rationales. This can lead to considerable difficulties. The ambidexterity perspective helps to understand the tensions between the instrumental and moral imperatives for business enterprises’ CSA. However, Hahn et al. (2016)’s theoretical model of ambidexterity to understand corporate social performance (CSP) mostly focuses on CSP’s explanations while disregarding how to manage the diverse strategic intentions of CSA. Hahn et al. (2016) highlight the ambidexterity notion of two rationales: business case and moral case, which permits enterprises to pursue both instrumental and moral social initiatives simultaneously. Yet, how to manage CSA’s divergent orientations is less understood.

Some research already demonstrates that business firms have different CSA approaches (Kang et al., 2016; Lins et al., 2017), which may result in contractions and tensions. Some organizations strategically use CSR activities to remedy earlier CSiR actions, which is ineffective in mitigating CSiR’s adverse effects (Kang et al., 2016). However, how pro-CSR-oriented activities and anti-CSiR activities can coexist and contribute to business performance remains unclear. When business leaders conduct CSA, they must limit their firm’s resources and organizational capabilities, and they must be dedicated to the CSA with diverse orientations. When utilizing the organizations’ limited resources (Penrose, 1959) for undertaking social activities, executives and managers must give judicious consideration to the most appropriate ways to do so. Due to such limitations (e.g., capital, knowledge, and time), pro-CSR- and anti-CSiR-oriented initiatives become paradoxical. While some enterprises choose to engage in pro-CSR or anti-CSiR-oriented activities, or minimal or no CSA, some outperforming organizations pursue an ambidextrous strategy for managing both simultaneously.

When undertaking CSA with divergent orientations, both pro-CSR- and anti-CSiR-oriented activities necessitate decision makers to use limited resources, capabilities, and attention. This can increase tensions in business operations. To overcome these difficulties, Kang et al. (2016) propose that companies use a sequential strategy to manage CSR and CSiR investments, ignoring the possibility of performing pro-CSR- and anti-CSiR-oriented activities simultaneously (Hahn et al., 2016). Business firms’ ambidexterity helps address, manage, and resolve societal problems and tensions.

From an ambidextrous perspective, enterprises can manage the tensions caused by pro-CSR- and anti-CSiR-oriented activities concurrently, which affect company performance. To date, research has not examined how these mechanisms and relationships may operate. Kang et al. (2016) demonstrate that pro-CSR- and anti-CSiR-oriented operations can be managed sequentially. Hahn et al. (2016) indicate that firms can manage CSA with contradictory rationales simultaneously. An ambidextrous viewpoint suggests that while managing CSA with diverse orientations, businesses can either seek a balanced approach or a combination of the two. Studies demonstrate that a balanced approach towards matching pro-CSR and anti-CSiR orientations of activities can contribute to corporate financial performance (CFP) by controlling risks and capturing opportunities (Oikonomou et al., 2012). Alternatively, in a combined approach, enterprises incorporate Pro-CSR and anti-CSiR initiatives, resulting in an improved outcome when combined (Hahn et al., 2016). These activities with both orientations can assist each other (Farjoun, 2010).

Our study’s purpose is to examine the impacts of how firms manage corporate social activities across divergent orientations, either pro-CSR (corporate social responsibility) and/or anti-CSiR (corporate social irresponsibility) activities. For example, less attention is given to how or why some organizations take the paradoxical approach while others view CSR as a tradeoff. We seek to understand how companies manage pro-CSR- and anti-CSiR-oriented activities to improve their CFP. Therefore, our research question is as follows: How companies manage divergent orientations of corporate social activities to enhance their financial performance?

To answer the research question, we analyzed ambidextrous CSA control systems. To understand the approaches to managing such activities and their impacts on CFP, we analyzed companies with paradoxical views of CSA management. In particular those pro-CSR and anti-CSiR activities with simultaneous engagement in both. We also examined company size and corporate financial risk, which can strengthen or diminish potential correlations. Longstanding research demonstrates that larger firms exhibit a strong relationship between CSA and CFP (Choi & Wang, 2009). Larger firms have more available resources at their disposal (Penrose, 1959). This makes it easier for decision makers to consider implementing social activities (McGuire et al., 1988; Lin-Hi & Müller, 2013). Previous research also indicates that CSA reduces financial risk and volatility (Godfrey et al., 2009; Orlitzky & Benjamin, 2001). By reducing such risks, organizations can reap the rewards of socially responsible activities. In contrast, socially irresponsible companies face greater risks. In our study, we consider the potential moderating effects of company size and corporate financial risk on the correlation between managing CSA and CFP. Our study is one of the first to distinguish between the paradoxical approach of CSA management from the tradeoff (contradictory) view via the divergent orientations. Our research enriches and contributes to the literature on ambidexterity through employing this strategy in the context of CSA management.

Theoretical background and hypotheses

The divergent orientations of CSA

Social activities with a pro-CSR orientation are regarded as adding social value beyond the company’s interests (McWilliams & Siegel, 2001; Lin-Hi & Müller, 2013). Activities with a CSiR orientation often have detrimental social repercussions (Lin-Hi & Müller, 2013; Murphy & Schlegelmilch, 2013). Lange (2012) defined CSiR as corporate behaviors that can harm stakeholders, such as detergent price manipulation, corruption, accounting scandals, and environmental disasters (Lin-Hi & Müller, 2013). In contrast, some companies take the opposite approach and avoid those social activities that have a detrimental influence (Lin-Hi & Müller, 2013). These are referred to as “anti-CSiR-oriented activities.” Whereas activities with a pro-CSR orientation enhance the stakeholders’ welfare (Donaldson & Preston, 1995) and/or generate public good beyond the firm’s interests (McWilliams & Siegel, 2001). This paradigm is reflected in pro-CSR’s voluntary nature, which reflects Carroll’s dimension of “ethical and philanthropic responsibilities” (Carroll, 1991).

Some CSiR-related activities violate the law, such as Siemens’ 2008 corruption scandal; Enron’s 2001 accounting scandals; WorldCom in 2002; and Parmalat from 1990 to 2003. Other CSiR-related practices such as leveraging multinational corporations’ offshore pollution havens (Strike et al., 2006) may impact other stakeholders but are not unlawful. Due to the potentially adverse effects of CSiR-related activities (Kang et al., 2016), and to avoid potential harm and being negatively perceived, some organizations increase their efforts to avoid CSiR-related activities. For example, some companies reduce their environmental impact through effective environmental waste management (Tang et al., 2015).

Companies manage CSA for several reasons. To gain competitive advantages (Garriga & Melé, 2004), eradicate their unpleasant records (Kang et al., 2016), enhance their corporate social performance (Hahn et al., 2016), and differentiate themselves from their competitors. For example, in India, unlike their competitors, H&M avoided child labor or being involved with suppliers that practiced it. Due to their diverse strategic intentions, businesses have distinct views of CSA. Some scholars believe that anti-CSiR is only one aspect of CSR and use the CSiR score as a synthesis evaluation of corporate social performance (CSP) (Tang et al., 2015). Others view pro-CSR as a counterargument to anti-CSiR and contend that in order to best optimize their impact, firms should organize these activities sequentially (Kang et al., 2016). Due to tensions resulting from resource limitations, capabilities, and managerial attention, executing CSA with divergent orientations results in an ambidextrous view of managing CSA (Hahn et al., 2016). Hahn et al. (2016) used Ambidexterity Theory to explain CSP through instrumentally and morally motivated social initiatives. The two contradictory rationales, the business case and the moral case, led to a conflict that could be addressed by organizational ambidexterity. In addition to the contradictory rationale tensions, organizations must also face the tensions caused by managing both pro-CSR- and anti-CSiR-oriented activities simultaneously, which ultimately affects their performance. Nevertheless, to date, managing pro-CSR- and anti-CSiR-oriented activities in an ambidextrous manner is understudied (Hahn et al., 2016), and the relationships between CSA management approaches and business performance remain unclear.

Managing divergent orientations of CSA

Cao et al. (2009)’s two dimensions of ambidexterity, balanced and combined, have been used by scholars as a proxy for evaluating paradoxical activities. For example, strategic fit (Venkatraman, 1989) and addressing social concerns (Hahn et al., 2016). We adopt the ambidexterity viewpoint to address enterprises’ social concerns (Hahn et al., 2016) and examine the resulting tension from managing pro-CSR and anti-CSiR activities concurrently. To successfully manage pro-CSR- and anti-CSiR-oriented social initiatives simultaneously, companies must be equipped with the necessary tools and mechanisms. Managing CSR and CSiR activities sequentially is ineffective in offsetting CSiR’s negative performance effects (Kang et al., 2016). Although enterprises are limited by corporate resources, organizational capabilities, and managerial cognition (business leaders’ attention), they can develop their capabilities through learning effective management processes for social activities.

The balanced approach to managing CSA

To address the pro-CSR and anti-CSiR orientations toward social activities, companies may adopt a balanced approach. Closely aligned pro-CSR and anti-CSiR orientations can contribute to CFP by mitigating potential risks and seizing opportunities (Oikonomou et al., 2012).

Certain pro-CSR and anti-CSiR orientations may be more suitable for resolving diverse social concerns. Organizations may face issues if one orientation is favored over the other. When an organization’s pro-CSR activities outnumber its anti-CSiR activities, the firm is confronted with several risks: corporate image volatility; risk of tainted reputation and brand value; and the risk of damaged stakeholder relationships (Lins et al., 2017). Uncovering negative activities such as bribery, tax evasion, theft of business secrets, and financial statement violations is likely to elicit a prompt reaction by capital markets (Oikonomou et al., 2012). In addition, unethical activities also undermine consumer trust (Leonidou et al., 2013), and deleterious behavior stimulates consumer skepticism and reduces brand satisfaction and loyalty (Skarmeas, 2013).

When an enterprise overemphasizes the orientation of anti-CSiR social activities above pro-CSR ones, certain types of social issues are overlooked. First, pro-CSR social activities safeguard organizations from the detrimental impact of negative events (Godfrey et al., 2009). It also serves to cleanse their past irresponsible corporate activities (Kang et al. 2016). A firm’s commitment to anti-CSiR-oriented social activities is often difficult for stakeholders to discern as they may be taken for granted (Lin-Hi & Müller, 2013). In contrast, pro-CSR-oriented social activities may be obvious to the public and increase stakeholders’ awareness. For example, a donation to Hurricane Katrina relief greatly improved a company’s reputation (Muller, 2011).

In contrast, if one company achieves a balanced approach and pursues both pro-CSR and anti-CSiR orientations equally, the activities will complement each other (Brower & Mahajan, 2013). Such a strategy may balance corporate social ambidexterity, and companies can match activities from both orientations to avoid risks. Successfully balancing social activities with both pro-CSR and anti-CSiR orientations will expand the company’s social initiatives. By serving as insurance against future scandals, pro-CSR focused activities can reinforce the weaknesses of anti-CSiR ones. Those activities with an anti-CSiR focus can limit pro-CSR orientations by improving their corporate image and minimizing stakeholder relationship losses. Therefore, we argue the following:

H1: The balanced approach to managing pro-CSR-oriented and anti-CSiR-oriented CSA is positively linked to CFP.

The combined approach to managing CSA

Even though CSR and CSiR generate contradictory social welfare impacts, they are not mutually exclusive in empirical terms (Windsor, 2013). In international trade competition, corporate lobbying to safeguard local companies’ market share and employment opportunities in their home country is detrimental to consumer rights and foreign companies’ interests. In this context, the CSAs’ efforts are consistent from both pro-CSR and anti-CSiR perspectives.

The established literature asserts three distinct relationships between CSA and CFP: positive, negative, and no relation. This relationship varies according to industry type and company. However, a consensus tends to be a mild positive correlation (Margolis et al., 2009). The combined approach incorporates two distinct activities that will produce an improved result when combined (Hahn et al., 2016). The combined approach to CSA management is valuable because activities with pro-CSR and anti-CSiR orientations are not completely contradictory; rather, they complement each other in a mutually beneficial manner (Farjoun, 2010). In particular, CSA complementary management seeks reciprocal benefits by addressing a specific social activity more effectively, rather than by exploiting the benefits of one type of orientation to compensate for the other (Brower & Mahajan, 2013; Hahn et al., 2016). From the ambidextrous perspective, this may be due to the efficient leveraging of organizational knowledge and resources across both orientations, allowing firms to increase the combined magnitude of two disparate activities (Cao et al., 2009). Companies that employ an ambidextrous approach to manage pro-CSR- and anti-CSiR-oriented social activities may explore their reciprocal synergies and the mutual benefits of pursuing both orientations simultaneously.

Managers may fathom a deeper understanding of a social area, such as environmental protection or community development, through the repeated application of organizational knowledge and experience (March, 1991). The organization will be more effective at incorporating this specific social sector’s knowledge and resources into their goods and markets. They will be more adept at identifying new market growth opportunities arising from this social area (Raisch et al., 2009). For example, Body Shop was founded on long-term social activism dedicated to environmental conservation. Such a focus enables the company to conduct green research and product innovation while also controlling the supply chain and production process to minimize negative environmental externalities. According to Barnett and Salomon (2012), CSR is more valuable than CSiR in terms of wealth generation. Thus, we state the following:

H2: The combined approach to managing pro-CSR-oriented and anti-CSiR-oriented CSA is positively linked to CFP.

Corporate-level moderators

In addition to examining the correlations between the balanced and combined approaches to managing social activities and CFP, we delve further into several contingencies that may strengthen or diminish those relationships. This includes firm size and corporate financial risk.

Firm size

Firm size is the primary indicator and measure of an organization’s tangible and intangible resources, and prior research has revealed that larger firms demonstrate a strong relationship between CSA and CFP (Choi & Wang, 2009). Larger companies typically have a greater pool of resources at their disposal (Penrose, 1959). Although the unbalanced approach to CSA management may create risks, the company’s available resources (e.g., technology and financial capital) can cushion such risks and mitigate possible negative impacts on CFP (Bourgeois, 1981). As a result, larger organizations have more resources to deal with potentially disastrous risks. As previously discussed, a balanced approach can help enterprises manage such risks. In contrast to larger companies, whose corporate reputations, brand values, and stakeholder relations are more stable, smaller companies lack the resources and capabilities to deal with these risks.

Due to the paucity of financial and human resources, SMEs engage less in CSA (Jenkins, 2004). However, because of their intent, CSAs in smaller companies are more likely to generate financial benefits. According to a recent study on CSR engagements among SMEs in France, when SMEs are smaller in size, business managers are more instrumentally (economically) driven when engaging in CSA (Hudson & Descubes, 2021). This economic outcome-oriented CSA motivation may enable companies to pursue higher financial performance in a more efficient and lean manner. Additionally, SMEs with limited strategic resources are meticulous when selecting the CSA. This drives them to adopt a balanced approach, with greater care in balancing the practices of pro-CSR or anti-CSiR orientation. As a result, the majority of those observed using a balanced approach are small companies. When companies experience growth, they will be more actively involved in other forms of CSA, such as promoting more external communication and CSR reporting (Baumann-Pauly et al., 2013). Otherwise, they will become more instrumental and morally driven, increasing the likelihood of foregoing financial returns in order to build a positive reputation.

Therefore, compared with big firms, when taking the balanced approach to managing CSA’s divergent orientations, smaller enterprises tend to be economically motivated and make better use of their limited resources for economic returns. This leads to stronger financial performance. We state the following:

H3a: Firm size negatively moderates the relationship between the balanced approach to managing CSA and CFP.

The choice and implementation of a company’s social activities are heavily dependent on the availability of excess resources (McGuire et al., 1988). Different sets of auxiliary resources are needed for pro-CSR- and anti-CSiR-oriented social activities (Lin-Hi & Müller, 2013). Adequate resources are necessary to simultaneously fuel the pro-CSR- and anti-CSiR-oriented efforts in a combined manner in order to realize the complementary strategy. Additionally, larger enterprises typically have access to richer resources than SMEs (Gupta, 1969). This allows them to engage in a more combined method of conducting the pro-CSR- and anti-CSiR-oriented activities simultaneously (Johnson & Greening, 1999). This may allow larger enterprises to benefit more than SMEs when using the combined method of engaging in the pro-CSR- and anti-CSiR-oriented activities simultaneously. This is due to larger companies’ increased ability to respond to pressures from various stakeholders through discretionary CSA (McGuire et al., 1988), as well as having improved internal firm infrastructures (such as routines and procedures) in implementing CSA (Chen & Hambrick, 1995). However, SMEs with fewer resources to support a more combined approach when responding to stakeholders (McGuire et al., 1988), may be less capable of managing both pro-CSR- and anti-CSiR-oriented activities simultaneously (Chen & Hambrick, 1995). They may follow the traditional means of allocating their scarce resources to implementing CSR activities (Udayasankar, 2008), which ultimately results in lower firm performance.

In addition, other research indicates that larger enterprises with greater levels of slack resources tend to engage in and maintain their CSR-related activities more than SMEs (Bowen, 2007). This gives them the opportunity to accommodate both pro-CSR and anti-CSiR concurrently (Baumann-Pauly et al., 2013). Thus, larger enterprises have sufficient resources to provide their management with greater flexibility to search, distinguish, select, and initiate social activities with greater financial rewards (Kang et al., 2016). The implementation and value creation of social activities also requires managers’ knowledge and experience because the relationship between CSA and CFP does not allow for any generalized conclusions (see a meta-analysis by Orlitzky et al., 2003). For instance, some companies’ market values decline due to their refusal to donate in response to natural disasters (Muller, 2011). Larger businesses tend to avoid such errors and are better positioned to derive value from CSA. As a result, we anticipate that larger organizations with greater resources, knowledge, and experience will be more effective in extracting value from the combined approach to social activities and will benefit more than SMEs. Large enterprises can adopt CSA inclusively due to their discretionary capabilities (Youn et al., 2015). In practice, these firms can carefully evaluate economic efficiency and moral reputation, both of which can enhance the firm’s overall image and performance in the long term. Therefore, we hypothesize the following:

H3b: Firm size positively moderates the relationship between the combined approach to managing CSA and CFP.

Corporate financial risk

Previous research, largely based on Instrumental Stakeholder Theory (Donaldson & Preston, 1995), supports the view that CSAs are an effective way of mitigating financial risk (Godfrey et al., 2009; Orlitzky & Benjami, 2001). These empirical findings demonstrate that an enterprise can reap the rewards of socially responsible activities by reducing its future financial volatility, while enterprises that are socially irresponsible are confronted with higher risks. We propose that a firm’s corporate financial risk has significant implications for corporate social ambidexterity. As previously mentioned, an important advantage of the balanced approach is the reduction of social risks. We believe that when a company faces increased financial risks, a low-level balanced approach to managing social activities will result in a negative correlation with CFP. Under such conditions, if the balanced approach is abandoned and the social hazards emerge, the organization may be unable to obtain financial resources to alleviate the social risks, resulting in a decline in the CFP. As a result, we reason that the balanced approach is more critical for those enterprises with higher financial risk and posit that

H4a: Corporate financial risk negatively moderates the relationship between the balanced approach to managing CSA and CFP.

Finally, we reason that organizations with lower financial risk that pursue a combined strategy for CSA management will benefit more. As previously stated, the combined approach is effectively carried out by repeatedly applying knowledge and experience to a specific social sector and thoroughly delving into it. Lower financial risk increases the organization’s tolerance of more costly social projects but enables them to focus on one particular area (Waddock & Graves, 1997) as well as build positive stakeholder relationships. In reality, stakeholders can determine whether a company genuinely cares about their interests by seeing how other stakeholders are treated (Berman et al., 1999). Building successful stakeholder relationships improves one bilateral relationship with a specific stakeholder group as well as addresses the needs and interests of multiple stakeholders (Orlitzky et al., 2003). Furthermore, the fully developed relationship with one stakeholder sector reduces the possibility of competitors’ imitation and replication. This level of domain consistency in social activities benefits the CFP (Wang & Choi, 2013).

We reason that, when an enterprise is confronted with reduced financial risks, it tends to concentrate on one social area, develop stronger stakeholder relationships, gain more extensive relationship capital, and enhance financial returns. Thus, we propose the following:

H4b: Corporate financial risk negatively moderates the relationship between the combined approach to managing CSA and CFP.

Methodology

Data

We used data from two distinct sources. The initial sample was derived from the MSCI ESG KLD STATS (KLD) database, which has been widely used in CSP research (Waddock & Graves, 1997; Choi & Wang, 2009; Barnett & Salomon, 2012). KLD has increased the rating on CSP from 8 to 13 dimensions since 1998 (Barnett & Salomon, 2012). We removed observations prior to 1998 to obtain 18 years of unbalanced panel data from 1998 to 2015. The KLD data was then merged with financial data from COMPUSTAT, a database of annual firm-level performance statistics on over 30,000 publicly traded companies. In several steps, we cleaned the data and eliminated outliers: 1) We removed samples from CSR controversial industries, such as tobacco and alcohol, as well as samples with special treatment; 2) We removed outlier samples, such as those with negative operating costs and R&D investment, or with Tobin’s Q, as a measure of CFP, greater than 15 (Kang et al., 2016); 3) We deleted samples with missing data. However, if the data on R&D and advertising expenditure were missing, this may indicate that there were no expenditures, hence the values were set to zero (Servaes et al., 2009). Finally, we obtained a sample as an unbalanced panel of 5,292 firms and 31,719 firm-year observations from 1998 to 2015.

Dependent variable

CFP was measured in two ways: Tobin’s Q (TBQ) and return on assets (ROA) as a robustness test. TBQ was calculated as the ratio of the focal firm’s market value over total assets in each year of our sample. ROA is calculated by dividing net income by total assets. We anticipate that the crosscheck between TBQ and ROA will yield consistent results that can be validated across measures.

Independent variables

The KLD database provides a basic annual binary score for each indicator. We compiled the corporate score of all the strength and concern indicators in accordance with the literature (Lins et al., 2017). The strength indicators’ score was used to gauge pro-CSR-oriented social activities. The total number of concern indicators for that year, less the corporate score of concern indicators, was used to measure the frequency of anti-CSiR-oriented activities. Through this reverse calculation, we could obtain the positive correlation between the anti-CSiR score and corporate effects. This indicates that if an organization does more to avoid negative activities, its anti-CSiR score will be higher. Based on recent pro-CSR and anti-CSiR research (Kang et al., 2016)in so doing, identify four mechanisms pertaining to this relationship: (1, we calculated the standardized overall pro-CSR and anti-CSiR ratings for each company and year.

After measuring organizational ambidexterity (He & Wong, 2004; Cao et al., 2009), we used the absolute differences between pro-CSR and anti-CSiR to gauge a balanced approach to managing CSA. To reverse the score, we subtracted the absolute difference from 20 so that the firm with greater balance has the higher score. The combined approach to CSA management describes the joint magnitude of pro-CSR- and anti-CSiR-oriented activities and was calculated as the product of pro-CSR and anti-CSiR scores.

Moderated variables

The number of full-time employees (measured in thousands) served as the logarithm of the firm size (SIZE). Corporate financial risk (RISK) was calculated as the firm’s long-term debt divided by total assets (Choi & Wang, 2009; Waddock & Graves, 1997). Investible resources were measured by utilizing the firm’s debt ratio (long-term debt divided by total assets). A greater debt ratio would diminish the company’s ability to incur additional debt (Oler et al., 2008). Consequently, levels of free cash flow for the same level of operating performance are reduced, leaving the firm with fewer funds to invest.

Control variables

To perform the estimation, we utilized a fixed-effect panel data model with dummy variables to control for year, industry, and location. To control the intangibles, we included variables for research and development (RD) and advertising (AD), as these two variables are often cited as key sources of CFP improvement (Choi & Wang, 2009). As in previous research (McWilliams & Siegel, 2001), R&D intensity is measured using a company’s annual R&D expenditure divided by the value of its total assets, and advertising intensity is measured using advertising expenditures divided by the value of its total assets. Operational efficiency (OPR) may enhance organizational learning and innovation, which could impact on CFP (Barnett & Salomon, 2012). It is measured as a company’s annual operational expenditure divided by the value of its total assets.

Statistical Method

To ensure the estimation does not contain erroneous results, we first conducted the stationary and unit root tests for the panel data. To conduct the stationary and unit root tests, we used the Augmented Dicky–Fuller test (ADF), as the panel data is unbalanced with time gaps. We then assessed the panel data with a fixed-effects estimator. The panel data can be divided into pooled regression, fixed-, and random-effect models. Following the regression of these three models, we conducted a Hausman test to determine the most appropriate model with fixed effects as follows:

TBQ_itis the dependent variable; X_it is the independent variable vector; i = 1,2,…,N is the cross-sectional index; and t = 1,2,…,T is the serial index for the panel data. The random error has two parts: γ_i is the individual-specific effects, and ε_it is the random perturbation of the model.

Results

Descriptive analysis

Table 1 presents the descriptive statistics and variable correlations of all hypothesized and control variables in our estimated model. This table reveals a substantial correlation between CFP (TBQ) and other variables. However, the correlation between TBQ and ROA is insignificant, suggesting that ROA is an effective and robust test for TBQ.

Table 1

**Descriptive statistics and zero-order correlations**

Despite the moderating variables, we checked the variance inflation factor (VIF) of our estimated model to determine whether multicollinearity might be obscuring the results. The largest VIF score was 1.45, which is far below the threshold of 10 (Kennedy et al., 1998), indicating that our results are not biased by multicollinearity.

Panel data analysis

The results of the stationarity and unit root tests are shown in Table 2. We demonstrate that the p-values of the first-difference focus variables are all less than 0.01. This leads us to reject the unit root null hypothesis and prove the first-difference stationary of our focal variables.

Table 2

**Summary of unit root and stationarity tests of the variables**

Table 3 presents the results of estimated models with the dependent variable TBQ, and Table 4 shows the estimation of the dependent variable ROA. In Model 1.1, we estimated TBQ on a base model of all moderate and control variables. Model 1.1 shows a positive relationship between TBQ and R&D intensity (RD) and operation expenditure (OPR), but a negative relationship between TBQ and corporate financial risk and company size. This is consistent with the correlations. The ROA dependent variable in the base Model 2.1 demonstrates that ROA is negatively correlated with R&D intensity, operation expenditure, and corporate financial risk. A contradictory point is that companies with increased R&D intensity have a higher TBQ but exhibit a lower ROA.

In a separate model, we evaluated the divergent approaches in accordance with the works of He and Wong (2004) and Cao et al. (2009). Initially, we included one of two ambidextrous approaches in the estimated models. Models 1.2 and 2.2 examine the main effect of the balanced approach, while Models 1.3 and 2.3 examine that of the combined approach. According to our analysis, both the balanced approach (β= 0.0045, p < 0.05, in Model 1.2) and the combined approach (β= 0.0139, p < 0.0001, in Model 1.3) were found to be significant. Next, using TBQ and ROA as the dependent variables in Models 1.4 and 2.4, respectively, we incorporated the main effects of both balanced and combined approaches. Model 1.4 reveals that the balanced approach to ambidexterity does not correlate with CFP (TBQ). However, the combined approach exhibits a positive TBQ relationship (β= 0.0139, p < 0.0001). This outcome in Model 2.4 was confirmed by a robustness test. As the CFP was measured by ROA, the balanced approach is not significantly related to ROA, but the combined approach shows a positive relationship with ROA (β= 0.0003, p < 0.1). According to these empirical findings, our first two hypotheses, which are based on the most conservative models (1.4 and 2.4) and include two main effects, support H2 but not H1.

We examined moderate effects individually, such as company size, tested in Models 1.5 and 2.5, and corporate financial risk, tested in Models 1.6 and 2.6. We also included the two moderators as a block in Models 1.7 and 2.7. The results are highly consistent and demonstrate robustness across multiple models. Model 1.7 includes a full set of moderators and company size and has no significant effect on the relationship between the balanced approach (BA) and CFP, hence, H3a was rejected. However, as predicted, firm size has a favorable impact on the main effect of the combined approach (β= 0.0059, p < 0.0001). This result is consistent with H3b’s reasoning, implying that the combined approach to management produces greater positive CFP effects for larger enterprises. Figure 2a depicts the plot of the moderate effect. The robustness test in Model 2.7 does not lead us to reject the H3b results.

Our test of H4a in Model 1.7 and the plot of BA × corporate financial risk (Figure 2b) indicates that the moderate effect of corporate financial risk is negatively significant (β = –0.0564, p < 0.0001). Model 2.7 yields the same negative result, though it is statistically insignificant, thus supporting H4a. However, the moderate effect of corporate financial risk on the relationship between the combined approach and CFP is mixed in Models 1.7 and 2.7. The outcome for the dependent variable TBQ in Model 1.7 is consistent with H4b, with corporate financial risk having significantly negative moderation (β = –0.0039, p < 0.05). In contrast, the result for ROA in Model 2.7 is significantly positive. H4b cannot be fully confirmed due to the inconsistent results.

Table 3

**Panel data analysis with TBQ as dependent variable**

Table 4

**Panel data analysis with ROA as dependent variable**

To summarize, strong evidence for hypotheses H2, H3b, and H4a was discovered. The findings demonstrate that the balanced and combined approaches to CSA management are two distinct approaches to achieving corporate ambidexterity and contributing to CFP through various mechanisms.

Robustness tests

Additional testing proves the robustness of our findings. First, we added an alternative CFP measurement. As recommended by the leading strategy and CSR literature, two distinct methodologies (TBQ and ROA) were used to measure CFP. With one exception, the dependent variable’s two measurements produced consistent results for H4b. We substituted the firm size measurement with the logarithm of total assets. The alternative methods exhibited no discernable differences. Second, we used a panel data set rather than a cross-sectional one to avoid endogenous problems and ensure causality (Gormley & Matsa, 2014). Prior to the panel data analysis, we performed stationary and unit root tests to demonstrate the statistical method’s feasibility.

Discussions and conclusions

Discussions

Mechanisms of managing CSA

In the literature, empirical results of CSA management and CFP are mixed. Our study could benefit the discussion due to its precise methods of gauging CSA management mechanisms. We believe that by managing CSA from a paradoxical perspective, companies can achieve ambidexterity.

CSA may have divergent orientations (Kang et al., 2016). Hahn et al. (2016) indicate that organizations may conduct instrumental and moral initiatives when addressing social issues. They contend that organizations may engage in corporate social activities using instrumental and moral rationales, which can result in considerable tensions (Hahn et al., 2016). They also highlight that an ambidexterity perspective is useful for comprehending and managing the tensions that arise when conducting corporate social activities. Our focus on CSA’s divergent orientations may also lead to conflicts when enterprises engage in corporate social activities. In contrast to the tensions between instrumental and moral rationales in Hahn et al.’s (2016) study, our research demonstrates that CSA’s divergent orientations increase the tensions of focal firms due to resource constraints, capabilities, and managerial attention. Our findings add to Hahn et al.’s (2016) ambidexterity perspective on understanding the contradictory rationale by providing an ambidextrous view on how enterprises manage the disparate strategic intentions of corporate social activities. This has been largely ignored in prior studies. Our study demonstrates how organizations use ambidextrous approaches (balanced and combined) in managing the divergent orientations of CSA. The ambidexterity view of two rationales, business and moral, enables enterprises to pursue both instrumental and moral social initiatives simultaneously (Hahn et al., 2016).

We pay particular attention to the ambidextrous approaches to managing CSR- and CSiR-oriented social activities simultaneously. As corporate social activity follows the focal firm’s CSR choice (Carroll, 1979), our categorization of a firm’s diverse CSA orientation, the CSR- and CSiR-oriented social activities, offers fresh insights into CSA when enterprises address social issues. Previous research on CSA highlights the importance of such activities, but empirical results are equivocal (Tang et al., 2012). According to Kang et al. (2016), CSA, the CSR- and CSiR-oriented social activities all impact business performance. However, how CSA is managed may not produce the desired results. In addition, conducting CSR activities following CSiR activities is ineffective in mitigating the CSiR’s negative effects on performance.

We concentrated on the focal firm’s CSA orientations by distinguishing the pro-CSR-oriented activities from the anti-CSiR-oriented ones. We could then investigate the different approaches enterprises use for managing CSA with divergent orientations. Due to the variations in strategic intent, we only considered ambidextrous firms managing pro-CSR- and anti-CSiR-oriented activities simultaneously (Priem, 1994). Managing two paradoxically-oriented activities concurrently is widely acknowledged as a way to achieve organizational ambidexterity (Hahn et al., 2016).

Next, we examined the two main approaches to managing CSA: balanced and combined. Such approaches are consistent with the ambidexterity literature (He & Wong, 2004; Cao et al., 2009) and complement a corporate firm’s ambidextrous view when addressing social issues (Hahn et al., 2016). The balanced and combined approaches to CSA management enrich our understanding of CSR studies with a fresh perspective on how organizations may benefit from CSA management (Hahn et al., 2016; Kang et al., 2016).

Managing CSA and corporate performance

We investigated the impacts of enterprises’ CSA management with the distinct balanced and combined approaches by considering company size and corporate financial risk. Introducing these two moderators in the correlations between CSA management and CFP may support the mixed empirical findings of previous studies such as Tang et al. (2012). The rejected hypothesis of the balanced approach to CSA and CFP management demonstrates that managing paradoxical activities in an ambidextrous manner may not always lead to enhanced financial performance. This finding is different from earlier studies such as He and Wong (2004). One possible explanation is that the potential benefits of anti-CSiR activity management are less salient than those of other activities such as R&D investments and innovation (Andriopoulos & Lewis, 2009). Another probability is that business executives view paradoxical conflicts in organizational tasks such as technology management (Taylor & Helfat, 2009) as distinct from those in CSA. In addition, ambidextrous efforts may lead to varied outcomes in the short- and long-term evaluation (O’Reilly & Tushman, 2013). In this regard, our unsupported hypothesis concerning a balanced approach to CSA and CFP management differs from past research. However, when firms conduct CSA in a combined approach, our non-rejected hypothesis test is consistent with other findings (He & Wong, 2004; Cao et al., 2009).

Corporate scale positively moderates the correlation between the combined approach to CSA and CSR management but not for the balanced approach. When pursuing a balanced approach to CSA management, larger organizations may not benefit from improved CFP. Their abundant organizational resources may not help decision makers grasp CSA due to their limited cognitive managerial capacities (Penrose, 1959). In addition, the public may perceive larger firms as more socially responsible; hence, stakeholders expect larger enterprises to engage in more CSA than smaller ones (Perez-Batres et al., 2012). We also discovered that corporate financial risk has a negative influence on the correlation between the balanced approach and CFP but has no impact on the main effect of the combined approach. Thus, when a company is faced with high financial risk, the combined approach conveys signals that the company will engage in a long-term investment in a social activity. This may help the firm gain public trust and lead to higher CFP.

Contributions

Our study contributes to the CSR literature threefold. First, we identified the significance of CSA’s pro-CSR and anti-CSiR orientations and highlight their importance. More importantly, we provide fresh insights into the balanced and combined approaches that manage CSA’s divergent orientations when ambidextrous firms undertake both pro-CSR- and anti-CSiR-oriented activities simultaneously. Second, we evaluated the impacts of two mechanisms for CSA management on CFP, namely, the balanced and combined approaches. Our findings indicate that for organizations pursuing ambidexterity in CSA management, the combined approach is more important. Furthermore, we investigated the impact of company size and corporate financial risk on these two methodologies and CFP. We discovered that under such contingencies, the distinction between the balanced and combined approaches becomes more apparent. Finally, our focus on CSA management at the activity level expands the CSR literature at the firm (Lins et al., 2017) and individual levels (Petrenko et al., 2016). It also complements ambidexterity research at the firm (He & Wong, 2004), product (Taylor & Helfat, 2009), and individual levels (Groysberg & Lee, 2009).

Implications

This study categorized CSAs based on their orientations. Leaders with potentially diverse strategic intentions, such as current and future business development focus, should be aware of such differences in order to manage them. (Priem, 1994). To provide top managers with the know-how to conduct CSA, we summarized two approaches: balanced and combined. Our results assist decision makers to improve their resource management and to achieve organizational ambidexterity, which enhances financial performance. Our study enriches the CSR literature by offering a detailed analysis of how to manage CSA with divergent orientations. It also provides fresh insights into the ambidexterity literature with a new level of analysis, CSA, which focuses on organizational and individual behaviors and supplements the mainstream ambidexterity research.

Our study also serves as a guideline for executives and top management when considering ethical decision making. Categorizing pro-CSR-oriented and anti-CSiR-oriented activities allows them to determine the optimal strategy to conduct CSA. More importantly, our balanced and combined approaches enable decision makers to benchmark how to manage social activities to become ambidextrous, which may improve financial outcomes. Decision makers can better position their organizations when dealing with public mandates or stakeholder pressure if they understand the different impacts of balanced and combined approaches to CSA management on financial performance. Our findings for the two contingencies, company size and corporate financial risk, are also beneficial. The differing influences of these contingencies on the impacts of two approaches to company performance demonstrates that decision makers have different conditions. Understanding that implementing CSA may not yield superior financial outputs for large enterprises is important for small and medium-sized enterprises who seek to engage in bold activities to build their reputation in society. Similarly, our findings for corporate financial risk also inspire confidence in decision makers to engage in CSA as financial risks may not depreciate the benefits resulting from CSA management.

Limitations and future research

Our study has the following limitations: First, only firms with a paradoxical view when managing CSA with divergent orientations simultaneously were considered. Firms that conduct CSA with divergent orientations alternatively were excluded. Some studies, for example O’Reilly and Tushman (2013), that sequentially distinguish between the two parties to the paradox are also considered ambidextrous. Future research may compare various strategies to address the paradox of CSA management. Second, we have no influence over other external organizational aspects, such as geographical locations or contingencies. As public awareness and institutional pressure vary among countries, considering those distinctions, such as cultural or institutional differences, merits further academic research.

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