published on May 5, 2017
Maretno A. Harjoto
The Impact of Institutional and Technical Social Responsibilities on the Likelihood of Corporate Fraud
Organizational theory argues that institutional social responsibility, which represents managers’ moral values, ethics, and norms (i.e. community, environment), and technical (strategic) social responsibility, which represents firms’ relationship with key stakeholders (i.e., employees, suppliers, consumers), influence corporate ethical behavior. We examine and compare the impacts of strengths and concerns of institutional and technical (strategic) social responsibilities on the likelihood of corporate fraud. Using a sample of 152 high-profile corporate fraud cases in the U.S. during the 2000-2010 period, we find that firms’ corporate social responsibility activities reduce the likelihood of corporate fraud. More importantly, our study finds that both institutional strengths and technical strengths reduce the likelihood of corporate fraud. Institutional concerns also increase the likelihood of corporate fraud and institutional responsibility plays a more significant role than technical responsibility. Our study supports the legitimacy theory of social responsibility and highlights the importance of moral management to reduce the likelihood of corporate fraud.