Buffering the adverse effects of social nonmarket strategy on corporate financial performance

Abstract

Purpose Firms are advocating for social change to a growing extent, but the performance implications of corporate activism are not clearly understood. This study aims to introduce social nonmarket strategy (SNMS) as a goal-directed form of corporate activism, explore whether such strategy harms corporate financial performance (CFP), and assess the buffering potential of effective market-based strategy and good standing with stakeholders. Design/methodology/approach A reflective measurement model and all hypothesized relationships were tested using consistent partial least squares structural equation modeling on a data set of 202 US-based small, medium, and large manufacturing and service firms. Findings SNMS is positively related to good standing with stakeholders but negatively related to CFP. By contrast, a higher market strategy (MS) is positively associated with both stakeholder performance and CFP. MS and stakeholder performance buffer but do not fully neutralize the adverse financial effect of SNMS. Practical implications Firms undertaking SNMS face serious risks. However, effective MS and higher levels of stakeholder performance can buffer but not fully neutralize the adverse financial effect of SNMS. Originality/value This research introduces SNMS as a goal-directed form of corporate activism, establishes the conflicting performance effects of such strategy and estimates the buffering potential of MS and stakeholder performance.