Strategic Response To Institutional Pressure Of Corporate Philanthropy

Why do firms whose primary goal is maximizing profit still engage in philanthropy? This question has attracted numerous scholars to identify the underlying complex motivations that could explain the behaviors of corporate philanthropy. Prior research has focused on the internal characteristics of corporate, such as profitability, slack resource, CEO's compensation structure and manager's discretion and values. With the development of research, some scholars have gradually shifted their perspective from the corporate internal characteristics to the external environment. They suggest that corporate philanthropy can be seen as an adaption to the external environment and a response to the expectations and pressures of external stakeholders, especially salient and key stakeholders. In the same vein, this study will focus on the external environment. In particular, our research will emphasize on the most direct and proximal organizational fields surrounding an organization-geography and industry. In the context of corporate philanthropy, we adopt the theoretical framework of strategic response to institutional process, integrate institutional theory, resource dependence theory and stakeholder theory and consider the salient stakeholders to build an integrated and systemic model of strategic response to institutional pressure and to explore the underlying mechanism of this model.Based on the panel data of China's A-share listed companies from 2007 to 2012, this study empirically tests the corporate philanthropy model of strategic response to institutional pressure and proves corporate will respond positively to institutional pressure in either organizational fields (geography and industry). However, since companies often perceive different salience of stakeholders determined by stakeholders' three characters--power, legitimacy and urgency, institutional pressure from different organizational field will exert influence in different paths. In addition, institutional and market factors including external environment and firm's own characteristics will influence firm's choice of strategic responses. The strategic response not only reflects the balance of legitimacy and market efficiency, but also justifies our inference that institutional pressure exert influence via different paths.The contributions of this study as follows:Firstly, this study extends the boundary of Oliver's theoretical framework of strategic response to institutional process. And this study systematically builds the model of strategic response to institutional pressure of corporate philanthropy and empirically tests this model based on Chinese context of transition economy.Secondly, this research indicates that institutional pressures, which originate from different organizational fields, will force firms to conform to them. But these two kinds of different institutional pressures will have different influencing path on firm's final strategic response. This results from difference of stakeholder's salience of which firms perceive. Under institutional pressure originated from geographic field, government will be perceived as the most salient stakeholders; Under institutional pressure originated from industrial field, customers and suppliers will be perceived as most salient stakeholders. To get legitimacy or alleviate competition pressure, firms will prefer to meeting their expectations and needs of salient stakeholder.Thirdly, this research inspects two different sources of institutional pressures which originate from corporate philanthropy-geography and industry. This design can avoid to neglecting institutional force or neglecting market force. Meanwhile the design can vividly compare different impacts on firm's strategic response generated by institutional factors and market factors.