When we talk about making the world a better place, most of us tend to think big — often in terms of global movements. However, according to new research led by Finance PhD student Christoph Schiller, there is value to thinking on a smaller scale. As it turns out, local regulations can have global effects.
“Corporate social responsibility is relevant to most businesses and their investors right now,” says Schiller. “Though a lot of attention is paid to how consumers and activist investors might drive firms to adopt more responsible business practices, it’s worth investigating the roles of individual firms and how they might influence each other.”
Schiller, who primarily studies supply chains, information diffusion and corporate responsibility, blended his research interests for this current project. In this new work, he’s exploring how global supply chain networks — which we rely on for producing, manufacturing and distributing goods from all over the world — might also contribute to spreading the adoption of responsible business practices.
By completing high-level statistical analysis of data collected from annual reports, CSR reports and news releases concerning firms from over 50 countries, he found that firms play an influential role in driving changes within the organizations they are closely connected to.
“When it comes to corporate social responsibility, we can’t discount how local regulations can have global effects.”
—Christoph Schiller, PhD candidate
“Firm-level relationships matter. When a firm is required to adopt a new regulation, there is a spillover effect. Local regulations in one country can have a real impact on economic outcomes and behaviours of firms in foreign countries.”
By going over EPA emissions data, Schiller found that suppliers reduced their annual emissions by as much as 20 per cent when their foreign customers were faced with stricter environmental regulations.
What’s more, he observed that supplier firms that adopted certain environmental or social policies typically increased their market value.
“This was probably the most surprising observation,” Schiller notes. “From a pure economic theory perspective, incorporating environmental initiatives is often considered costly to a business — but that’s not what we found.”
It’s hard to say what might be causing this trend, he says. It could be that better regulated firms are less likely to face lawsuits or they might be improving their reputation significantly, which helps them land more clients.
Over the next few months, as Schiller completes his PhD at Rotman, he will continue to present his findings at upcoming conferences. He will also be working on revisions to his paper and incorporating collected feedback, before submitting a refined manuscript to a top peer-reviewed journal.
In the meantime, what’s his advice for change makers and activist investors?
“If you want to make an impact, focus on the most connected firms. They have a wide network and it could lead to the greatest results.”
Schiller’s PhD advisors are Finance Professors Craig Doidge and Bing Han. He received support for his research from the Rotman School’s Michael Lee-Chin Family Institute for Corporate Citizenship and the Canadian Securities Institute Research Foundation.
Written by Rebecca Cheung | More Rotman Insights »