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Millington 2008). Firm philanthropic acts help to balance
relations with stakeholders, improve business environment
and gain economic benefits. Godfrey (2005) finds that firm
philanthropy can boost firm reputational capital, and thus
stakeholder evaluation, thereby reducing operational risk.
The author suggests that firm philanthropy generates
positive moral capital among communities and stakehold-
ers, and can mitigate negative stakeholder assessments
following firm misconduct, and reduces a firm’s business
risk. Dean (2003) further shows that charitable contribu-
tions can help firms to establish a good relationship with
customers and improve customer loyalty. Firm philan-
thropic behavior is clearly an important measure of CSR,
and thus is adopted as our CSR measure in deriving our
hypotheses and conducting empirical tests.
The results of this paper show that thebetter a firm performs
in fulfilling its social responsibilities, the better its relationship
with suppliers is. More specifically, social responsibility helps
a firm to obtain more trade credit from suppliers, which sug-
gests that a firm’s CSR strategy is important to the stakeholder
group. A commitment to CSP can improve a firm’s relation-
ship with suppliers and help the firm to achieve economic
benefits and long-term business goals. Furthermore, this paper
finds CSP’s effect on this relationship weaker in SOEs, which
normally enjoy strong negotiating power and a dominant
position in the supply chain because of government support
and resource advantages. SOEs thus have little incentive to
use CSR to win over suppliers, and their CSR strategies are
possibly reflected in other ways.
This paper contributes to the CSR and CSP literature in
several ways. First, it empirically examines CSP’s effect on
a firm’s relationship with suppliers and verifies the appli-
cability of the strategic philanthropy view (Porter and
Kramer 1999, 2002) and stakeholder theory (Freeman
1984) to the supply chain in the largest transition economy,
China. Related literature focuses primarily on CSR’s effect
on shareholders and creditors. Although scholars such as
Porter and Kramer (1999, 2002) believe both stakeholders
and outside investors to be the intended objects of a CSR
strategy, the issue has not been widely explored empiri-
cally. This paper fills this gap in the research by providing
new empirical evidence in support of strategic philan-
thropy. Second, the paper shows that SOEs and non-SOEs
have different CSR intentions and use CSR in different
ways to achieve strategic goals. Few studies have investi-
gated CSR strategies’ effects on stakeholders in different
firm types, this paper provides empirical evidence to fill the
void. Finally, the conclusions drawn from this study pro-
vide practical guidance on CSR strategy, suggesting that
CSR activities can help a firm in transition economies to
enhance its corporate image, establish and consolidate a
good relationship with suppliers, and obtain economic
benefits or achieve long-term business objectives.
Literature Review
Corporate social responsibility reflects a firm’s obligations
to society and to the stakeholders therein that are affected
by its actions. In recent years, there has been a considerable
shift in thinking with regard to improving firms’ social and
environmental performance. Some scholars argue that the
government should regulate such performance (Porter and
van der Linde 1995), whereas others take the view that
self-designed voluntary standards provide the firm sector
with greater flexibility and are thus preferable. Many
researchers have investigated the underlying business
motivation for the voluntary adoption of CSR programs
(e.g., Delmas and Terlaak 2002), and firms are reported to
engage in CSR activities to enhance their reputation (Fo-
mbrun 2005), manage risk (Husted 2005) and generate
customer loyalty (Bhattacharya and Sen 2001).
Stakeholder engagement theory (Freeman 1984) posits
that socially responsible behavior helps to improve firm
performance because business success depends on meeting
the expectations of major stakeholders. The theory also
suggests that CSR involves managing multiple stakeholder
ties concurrently. Superior CSR performance captures a
firm’s commitment to and engagement with stakeholders
on the basis of mutual trust and cooperation (Jones 1995).
Consequently, as Jones (1995, p. 422) argued, ‘‘because
ethical solutions to commitment problems are more effi-
cient than mechanisms designed to curb opportunism, it
follows that firms that contract with their stakeholders on
the basis of mutual trust and cooperation will experience
reduced agency costs, transaction costs, and costs associ-
ated with team production.’’ These agency and transaction
costs include ‘‘monitoring costs, bonding costs, search
costs, warranty costs, and residual losses.’’ Moreover,
superior engagement with stakeholders can enhance a
firm’s revenue or profit generation and contribute to the
persistence of superior profitability (Choi and Wang 2009).
A higher quality relationship with business partners in turn
improves interactions with customers and facilitates new
product development (Sen and Bhattacharya 2001). In
other words, superior stakeholder engagement may reduce
the likelihood of short-term opportunistic behavior (Bena-
bou and Tirole 2010). It also represents a more efficient
method of contracting with key stakeholders (Jones 1995)
that could lead to enhanced revenue or profit generation,
which in turn is rewarded by the market.
Most studies of CSR’s effects on stakeholders are con-
ducted from the viewpoint of firm investors. For example,
Mackey et al. (2007) show that when a large number of
investors choose to buy stock of a firm with a good CSR
reputation, the firm’s cost of equity capital is reduced
because of the excess demand. Patten (2008) investigates
the charitable donation behavior of 79 U.S. firms during the
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