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Journal of Business Ethics

Erschienen in:

13.01.2015

When do Firms Invest in Corporate Social Responsibility? A Real Option Framework

verfasst von: Danny Cassimon, Peter-Jan Engelen, Luc Van Liedekerke

Erschienen in: Journal of Business Ethics | Ausgabe 1/2016

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Abstract

In this paper, the process for firms to decide whether or not to invest in corporate social responsibility is treated from a real option perspective. We extend the Husted (J Bus Ethics 60:175–183, 2005) framework with an important extra parameter that allows us to understand the timing of CSR investment and explain why some companies drag their feet over CSR investments. Our model explicitly allows for the impact of the opportunity cost of delaying the CSR investment decision, providing firms with tools to determine the optimal moment of exercising the CSR investment option. We illustrate our timing model through a case study and analyze governmental support strategies for CSR from a real options perspective.

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Consequently, as clearly established in financial option theory, holders will never execute the option before the end of the lifetime of the option.

As such we do not put this reference constantly in the body of the text to improve the readability of this section.

Potentially more, substantial deals in future would be highly uncertain.

As the sixth value driver, the interest rate r, is largely exogenous, we do not consider it further here.

In fact, this might transfer the CSR investment problem into another type of real option, i.e. a criminal option. See e.g. Engelen (2004), or Cassimon, Engelen and Reyntjens (2013) for applications.

Europe went for instance through an intensive round of renewable energy subsidies which had a huge influence on the CSR investment around renewable energy (e.g. solar panels, windmills, etc.) by private companies. With the subsidy frenzy over, we witnessed an equally remarkable drop in renewable energy investments by companies and civilians alike.

Sometimes labelled as partnering; a direct collaboration between government organizations with firms or business associations, in which public sector bodies can function as participant, convener, or facilitator (Moon et al. 2010; Fox et al. 2002).

A well-known example is The Ethical Trading Initiative (ETI). Set up in the UK mainly through government money from the Department for International Development, it brings together NGOs, companies and trade unions with the aim to improve working conditions in the apparel industry. Several companies reacted to ETI by increasing their CSR investments. It was clear from the start—due to the government commitment and the money invested—that ETI would not be reduced to a talking shop but stood a serious chance of increasing the monitoring around social conditions in the supply chain.

Fox et al. (2002) refer to it as endorsement, defined as any form of political support and affirmation of the concept of CSR and related initiatives.

This can be expressed by the following equation: \(dS = \mu \,S\,dt + \sigma \,S\,dz\), according to which a price change dS in a small time interval dt consists of two components; a deterministic component (μ), also called the drift, which measures the average growth rate of the asset price and a random or stochastic component (σ), also called the volatility, which measures the strength of the statistical price fluctuations.

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Titel: When do Firms Invest in Corporate Social Responsibility? A Real Option Framework
verfasst von: Danny Cassimon
Peter-Jan Engelen
Luc Van Liedekerke
Publikationsdatum: 13.01.2015
Verlag: Springer Netherlands
Erschienen in: Journal of Business Ethics / Ausgabe 1/2016
Print ISSN: 0167-4544
Elektronische ISSN: 1573-0697
DOI: https://doi.org/10.1007/s10551-015-2539-y

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