Corporate social responsibilities, consumer trust and corporate reputation: South Korean consumers' perspectives

Journal of Business Research 67 (2014) 295–302

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Journal of Business Research

Corporate social responsibilities, consumer trust and corporate reputation: South Korean consumers' perspectives☆ Jongchul Park a, Hanjoon Lee b,⁎, Chankon Kim c a b c

Chosun University, Division of Business, 375 Seosuk-dong, Dong-gu, Gwangju, Republic of Korea Hanyang University, School of Business, 17 Haengdang-dong, Seongdong-gu, Seoul, Republic of Korea Saint Mary's University, Sobey School of Business, Halifax, Nova Scotia, B3H 3C3, Canada

a r t i c l e

i n f o

Article history: Received 1 November 2012 Received in revised form 1 May 2013 Accepted 1 May 2013 Available online 2 June 2013 Keywords: CSR Consumer trust Corporate reputation Mediation Social benevolence Trust

a b s t r a c t This study proposes and tests a model of corporate social responsibility (CSR) that specifies relationships among (1) four categories of CSR initiatives as independent variables, (2) three types of consumer trust as mediating variables, and (3) corporate reputation as the dependent variable. Results show that the firm's fulfillment of economic and legal CSR initiatives had a direct positive effect on corporate reputation, whereas neither ethical nor philanthropic CSR initiatives did. In the CSR-trust link, economic performances fostered consumer expertise trust, legal and ethical CSR activities affected integrity trust, and philanthropic CSR activities influenced social benevolence trust in the firm. This study confirms that all three types of trust partially or fully mediate the effect of the four CSR initiatives on corporate reputation. This outcome indicates that CSR activities create and nurture consumers' trust in the company, which will, in turn, bring about consumers' positive or improved perceptions of the firm. © 2013 Elsevier Inc. All rights reserved.

1. Introduction A company is expected to articulate its values and prioritize its actions in such a way as to better meet the legitimate, economic, environmental, and social demands of society. In response, modern corporations not only accept corporate social responsibility (CSR) but also use CSR initiatives as important management tools (Bielak, Bonini, & Oppenheim, 2007). Given this trend in corporate CSR practices, the topic of CSR has generated academic research interests from management (Carroll, 1999; McWilliams & Siegel, 2001) and marketing (Brown & Dacin, 1997; Maignan & Ferrell, 2001; Sen & Bhattacharya, 2001). One research stream investigates the link between CSR and the firm's financial performance (Luo & Bhattacharya, 2006; McWilliams & Siegel, 2001). The findings from this research are largely mixed, and do not support either the presence or absence of a significant relationship. In another research stream, CSR is an essential element in building and maintaining a favorable corporate reputation which is regarded as an important strategic resource factoring into a company's competitive advantage (Keh & Xie, 2009). A firm's CSR practices positively affect consumer's attitude toward the corporation (Brown & Dacin, 1997; Sen & Bhattacharya, 2001). This study belongs to the latter stream.

☆ This study was supported by research fund from Chosun University, 2010. ⁎ Corresponding author. E-mail addresses: [email protected] (J. Park), [email protected] (H. Lee), [email protected] (C. Kim). 0148-2963/$ – see front matter © 2013 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.jbusres.2013.05.016

A limiting feature of the past CSR research in this area was the frequent conceptualization and measurement of CSR that involved a single aspect of CSR such as community involvement, fairness of employment, or business ethicality. A more desirable approach would be to take a more comprehensive perspective on CSR by incorporating a wide range of social demands in investigating the impact of CSR on consumers' corporate evaluations. Furthermore, past CSR studies were largely concerned with establishing an unconditional direct effect of CSR initiatives on company evaluations, paying little attention to the factors that may provide explanations for such effects. Trust is considered one of these factors with consumer satisfaction (Luo & Bhattacharya, 2006) and congruence between the consumer's characteristics and those of the corporation (Sen & Bhattacharya, 2001) that mediates the link between CSR initiatives and corporate evaluations (Castaldo, Perrini, Misani, & Tencati, 2009; Pivato, Misani, & Tencati, 2008). Implementations of CSR initiatives help nurture consumers' trust in the corporation and its products (Castaldo et al., 2009). Consumers' trust, in turn, helps the corporation maintain favorable relationships with consumers (Morgan & Hunt, 1994; Sirdeshmukh, Singh, & Sabol, 2002). Despite the potential role of the construct envisaged, only a few studies have examined the role of trust within CSR research, and the ones that have (Castaldo et al., 2009; Pivato et al., 2008; Valchos, Tsamakos, Vrechopoulos, Adam, & Avramidis, 2009) treated trust as a unidimensional global construct. This approach is not satisfactory given the prevailing multidimensional view of the concept (Mayer, Davis, & Schoorman, 1995; McKnight, Choudhury,

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& Kacmar, 2002; Sirdeshmukh et al., 2002). To address some of these inadequacies in past CSR research concerning the conceptualization and measurement of CSR and consumer trust, this study proposes and tests an integrative model that incorporates the relationships among multiple categories of CSR initiatives, multiple facets of consumer trust, and corporate reputation. From a strategic management perspective, corporate CSR decisions need to be considered as “investment decisions” (McWilliams & Siegel, 2001, p. 125). For a corporation to make proper strategic resource-allocation decisions for various CSR initiatives, it is necessary to envisage the effect of each CSR initiative on its reputation as well as the ways in which different facets of consumer trust may be influenced by different CSR initiatives and how they consequently affect the corporate reputation. 2. Theoretical foundation and research hypotheses To ensure survival and prosperity, a firm must integrate society's interests in its corporate activities. CSR refers to the corporate obligations to society or, more specifically, the corporations' stakeholders (Brown & Dacin, 1997; Sen & Bhattacharya, 2001). Carroll (1999) delineated four categories of social obligations that a responsible corporate citizen would seek to meet. These include economic, legal, ethical, and philanthropic responsibilities. Economic responsibilities include the obligation of satisfying consumers with products of good value, as well as generating sufficient profits for investors. Legal responsibilities require firms to obey laws and comply with regulations while fulfilling their economic obligations. Ethical responsibilities refer to the kinds of behaviors and ethical norms that business is expected to follow even though they have not been codified into law. And, lastly, philanthropic responsibilities encompass financial and non-financial contributions to particular causes for the “betterment of society.” 2.1. CSR and company reputation Corporations conduct CSR to improve society's wellbeing and to build and enhance their reputation (Brown & Dacin, 1997; Sen & Bhattacharya, 2001). Corporate reputation refers to the extent to which a corporation is held in high esteem in consumers' eyes (Weiss, Anderson, & Maclnnis, 1999). Consumers develop a sense of esteem or disdain toward a corporation based on direct experiences with its products and/or reputation-related information that comes to their attention. Corporate reputation is the end result of consumers' accumulation of perceptions regarding how well an organization met their demands and expectations (Abratt & Kleyn, 2012). Corporate reputation represents an intangible asset for a corporation. A firm's overall reputation can impact its financial performance, directly or indirectly (Rose & Thomsen, 2004). At the same time, the reverse may hold true: The firm's financial performance can influence its overall reputation. So, can the firm's reputation be influenced by non-economic factors, such as making positive contributions to the betterment of society and the environment (Walsh, Mitchell, Jackson, & Beatty, 2009)? Porter and Kramer (2002) stated that the fulfillment of economic and/or non-economic corporate social responsibilities can be a strategic device for corporate reputation building. Economic responsibilities and reputation: Society expects corporations to satisfy their consumers with quality products and generate sufficient profits for their investors. Fulfillment of the economic responsibilities enhances corporate reputation (Fombrun, 1996). Brown and Dacin (1997) showed that the company's ability in manufacturing and delivering its product (i.e., corporate ability) is a determinant of corporate reputation. In other studies, both service quality and product quality were found to have a positive influence on corporate reputation (Walsh & Beatty, 2007; Wang, Lo, & Hui, 2003). On the other hand, product recalls due to quality problems

and public complaints about a product adversely influenced corporation reputation (Grunwald & Bernd, 2010). Legal responsibilities and reputation: Businesses must fulfill their economic mission within the legal framework. For a century, people witnessed a series of scandals committed by corporations, such as Enron, and Arthur Anderson. These corporate wrongdoings resulted in the death of once prominent corporations. It is unequivocal that illegal corporate behaviors negatively influence consumers' attitudes towards a company (Elkins, 1976). Baucus and Baucus (1997) found that when corporations were convicted of illegal acts, their sales growth became significantly lower than those of unconvicted ones. In another study, a significant deterioration of corporate reputation was observed as the total number of citations due to violations of either occupational safety and health or environment related regulations (Williams & Barrett, 2000). There is little dispute that corporate wrongdoings can deliver serious impact on corporate reputation. Ethical responsibilities and reputation: Ethical responsibilities go beyond fulfilling a firm's legal obligations. The aims of a firm in meeting its ethical responsibilities are to ensure that its actions do not harm individuals or the public at large; that it does what is right, just, and fair (Smith & Quelch, 1993). There is evidence that consumer perceptions of the firm's ethical activities have a positive impact on corporate reputation (Bendixen & Abratt, 2007). The public's interest in ethical business practices is underscored by Creyer and Ross's (1997) finding that consumers are willing to reward an ethical firm by paying higher prices for the firm's products. In supplier and buyer relationships, Bendixen and Abratt (2007) found that the reputation of suppliers is affected by the buyer's perceptions regarding suppliers' ethical behaviors in terms of the extent to which they adhere to the code of ethics. Philanthropic responsibilities and reputation: Firms exercise their philanthropic responsibility by contributing financial and/or nonfinancial resources to humanitarian causes. These activities are voluntary. However, society expects good corporate citizens to be involved in these altruistic activities as a way of giving back to society. Williams and Barrett (2000) showed that a company's philanthropic activities had a positive effect on its reputation. A similar result was obtained from the ‘Britain's most admired companies’ survey data (Brammer & Millington, 2005). There is much evidence in marketing that philanthropic activities enhance consumers' attitudes toward the corporation, thereby strengthening its competitive advantage (Brown & Dacin, 1997; Sen & Bhattacharya, 2001; Yoon, Zeynep, & Schwarz, 2006). Based on this discussion, we developed the followed hypotheses. H1: A company's economic responsibility activities positively affect its corporate reputation. H2: A company's legal responsibility activities positively affect its corporate reputation. H3: A company's ethical responsibility activities positively affect its corporate reputation. H4: A company's philanthropic responsibility activities positively affect its corporate reputation. 2.2. CSR and consumer trust Consumer trust is the subject of considerable efforts to define it. For Barber (1983) trust is a set of “socially learned and socially confirmed expectations” (p. 164) that people have of other people or organizational entities. Trust develops as a result of a firm belief that the trustee is reliable, honest and benevolent (McKnight et al., 2002; Morgan & Hunt, 1994). Trust is defined from a consumer perspective as the consumer's belief that a corporation will perform in a manner consistent with expectations regarding its expertise, integrity, and goodwill. Trust is viewed as multidimensional (Barber, 1983; Mayer et al., 1995), although it has been conceptualized and/or operationalized as a global unidimensional construct (Castaldo et al., 2009; Pivato et al., 2008). We adopt the three-dimensional representation proposed

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by Mayer et al. (1995), which includes expertise, integrity, and social benevolence. Next, each of these trust dimensions and their anticipated links to the four types of CSR initiatives receive elaboration. 2.2.1. CSR and expertise trust Expertise trust is the consumer's belief that a company has the competence and technical skills to produce and deliver specific products, and that it is able to perform necessary business functions effectively (Mayer et al., 1995; McKnight et al., 2002). Consumers expect companies to possess the skills required to produce products that satisfy consumer needs. They also expect companies to earn sufficient profits to reinvest and ensure their own survival, create jobs, and be innovative. Consumers can learn about a company's competencies from the use of its products or by way of information obtained from outside sources (e.g., word-of-mouth, mass media). This knowledge about a company's economic performance leads to dis/confirmation of expectations. Based on this, consumers will subsequently develop expertise trust towards the company. This link between the company's fulfillment of economic responsibilities and consumer trust is supported by findings that the service provider's operational competence and expertise positively affected consumers' trust in the company (Busch & Wilson, 1976; Sirdeshmukh et al., 2002). Accordingly, we hypothesized: H5: A company's economic responsibility activities generate consumers' expertise trust in the company. 2.2.2. CSR and integrity trust Integrity trust is a consumers' belief that a company demonstrates consistency between their values and behavior, and adheres to the moral principle of fairness (Mayer et al., 1995; McKnight et al., 2002). To gain integrity trust from consumers, corporations need to fulfill their legal and ethical responsibilities. First, regarding legal obligations, a firm must obey laws and comply with pertinent regulations. These laws and regulations define minimum standards for business conduct. Consumers' knowledge of a company's record with regard to the discharge of its legal obligations will come through the mass media; and if consumers learn that a company has not fulfilled its legal responsibilities, they will perceive the company to be something less than honest and fair—not to be trusted (Elkins, 1976). One example of a company whose illegal behaviors led to a crisis of investor confidence – a complete loss of trust – involved energy giant Enron. In short, if a company does not fulfill its legal responsibilities, consumers will not perceive it to be honest and fair. Thus, we hypothesize: H6: A company's legal responsibility activities generate consumers' integrity trust in the company. A company's discharge of its ethical responsibilities influences integrity trust. Ethical responsibilities require that businesses abide by the moral rules defining appropriate behaviors in society. Whereas the law prescribes actions a firm must avoid, ethical responsibilities cover activities that society expects companies to undertake. When consumers recognize that a firm conducts its business in accordance with moral rules, they perceive the firm to be trustworthy. Lamberti and Lettieri (2008) found that a company's ethical commitment led to winning consumers' trust. Furthermore, an organization that engages in ethical behaviors and makes morally right decisions is likely to earn trust from society (Caldwell & Clapham, 2003). Thus, we hypothesize: H7: A company's ethical responsibility activities generate consumers' integrity trust in the company. 2.2.3. CSR and social benevolence trust Social benevolence trust refers to consumers' belief that a company is genuinely concerned with the preservation and enhancement of the welfare of society (Ganesan, 1994; Mayer et al., 1995; McKnight et al., 2002). Conveying positive motives and intentions behind the company's CSR initiatives is key to developing social benevolence trust by consumers. Starbucks, for example, is considered trustworthy because

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of its well-known commitment to several philanthropic causes— including support of sustainable water and social development programs in communities from which the company purchases its coffee beans. In contrast, the dollars contributed by tobacco companies to various “good” causes did little to combat the public's belief that they are not to be trusted because they continued to target young people with their marketing efforts (Yoon et al., 2006). Most consumers do not directly benefit from corporate philanthropic activities, but most consumers think highly of firms that commit financial and other resources to the betterment of society (Morales, 2005). When a firm involves itself in corporate philanthropy, consumers likely conclude that it is genuinely concerned with society's wellbeing – over and above its desire to earn profits – and when this happens, social benevolence trust builds. We hypothesize: H8: A company's philanthropic responsibility activities generate consumers' social benevolence trust. 2.3. Trust and corporate reputation Reputation is fundamental for corporate success. Reputation is associated with consumer satisfaction (Thorsten, Gwinner, & Gremler, 2002), and product quality (Wang et al., 2003). Corporate reputation was found to be positively related to trust (Ganesan, 1994). However, the causal relationship between corporate reputation and trust remains unclear. Some regarded trust in corporation as a consequence of good corporate reputation (Keh & Xie, 2009), while others treated reputation as an outcome of trust (Walsh et al., 2009; Yoon et al., 2006). A resolution of this issue could draw on Fishbein and Ajzen (1975). The three trust types are best conceptualized as beliefs—the corporation is competent, socially benevolent, and adheres to the moral principle of fairness and honesty. Thus, trust is cognitive in nature. Corporate reputation, on the other hand, is an affective construct—the overall evaluation of a company (Fazio, 1986). For Fishbein and Ajzen (1975), attitude is evaluative and affective in nature and based on the strength of beliefs regarding the attitude object and the evaluative aspects of these beliefs. More generally, consumers form an overall evaluation or attitude toward an object by integrating relevant knowledge or beliefs they hold about the object. Based on this, trust (cognition) is viewable as an antecedent to corporate reputation (evaluation). Consequently, the study tests the following hypotheses. H9: Expertise trust will positively affect corporate reputation. H10: Integrity trust will positively affect corporate reputation. H11: Social benevolence trust will positively affect corporate reputation. The conceptual model which integrates the hypothesized relationships appears in Fig. 1. 2.4. Trust as a mediating variable Studies on CSR found that consumer responses to CSR are complex (Forehand & Grier, 2003; Yoon et al., 2006): consumers may react negatively to CSR activities and the company when the motives behind the CSR activities are questioned. Forehand and Grier (2003) found that when subjects believed a company conducted philanthropic activities for its own firm-serving benefits, the philanthropic activities had a negative impact on the company attitudes, even though this company maintained that it did it for public-serving benefits. Godfrey (2005) argued that an improvement in corporate reputation would result from the corporation's philanthropic donations, only when the donation activity and the donation motives are perceived to be positive. Hillenbrand, Money, and Pavelin (2012) confirmed Godfrey's view about philanthropic activities but further indicated that to attain a reputation as a responsible corporation, a firm must be perceived to have behaved well (i.e., to be competent in business activities, sustainable, transparent, and limit negative social impacts) and with good intentions (i.e., to be truthful, reliable, and genuinely care about the wider society). These studies confirm that in order for CSR practices

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Economic Responsibilities

H1 H5

Expertise Trust

H9 Legal Responsibilities

H2 H6 Integrity Trust

H10

Corporate Reputation

H7 Ethical Responsibilities

H3 H11

Social Benevolence Trust

H8 Philanthropic Responsibilities

H4

Fig. 1. The proposed model.

to positively impact corporate reputation, the corporation needs to instill trust in consumers' minds that it has been implementing its CSR responsibilities with competence, integrity, and genuine concern for the societal wellbeing. In the model (Fig. 1), the three types of trust are positioned as mediators of the effects that the four types of CSR initiatives have on corporate reputation. H12a: Consumers' expertise trust in a company mediates the effect of the company's economic responsibility activities on corporate reputation. H12b: Consumers' integrity trust in a company mediates the effect of the company's legal responsibility activities on corporate reputation. H12c: Consumers' integrity trust in a company mediates the effect of the company's ethical responsibility activities on corporate reputation. H12d: Consumers' social benevolence trust in a company mediates the effect of the company's philanthropic responsibility activities on corporate reputation. 3. Method 3.1. Data collection Data were collected in two large cities in South Korea: Seoul and Daegu. The participants consisted of 145 business school students and 449 general consumers. General consumers were recruited from people attending evening cultural education programs provided by local community centers (four centers in Seoul, and two centers in Daegu), while the students were attending marketing classes in two universities (one in each city). Respondents were offered a gift certificate as a token of appreciation. In terms of demographics,

about half (51%) were male (n = 296), and 84% had a high school or higher education (n = 498). The average age was 35 years. General consumer respondents held various occupational backgrounds; housewives (n = 95), corporate managers (n = 159), engineers (n = 44), self-employed (n = 46), school teachers (n = 24), and others (n = 81).

3.2. Measures In order to develop CSR measurement items that better reflected Korean consumers' expectations of corporate behaviors and obligations to society as well as their views on the various CSR activities undertaken by Korean corporations, four focus groups were run (one with 8 corporate CSR managers, two with 13 general consumers, and one with 7 graduate business students majoring in business). The interview transcripts revealed that most CSR activities considered were similar to those included in Maignan and Ferrell's (2001) study. However, some CSR beliefs expressed were not reflected in the CSR measures used in the North American context. For example, in implementing economic responsibility, Korean consumers wanted to see corporations generate wealth that would improve the whole nation's standard of living. However, consumers attached negative connotations to the notion of profit maximization by corporations. For philanthropic responsibility, ‘paying higher salaries to employees’ (Maignan & Ferrell, 2001) was not mentioned as a CSR initiative. A battery of 28 items – 7 items for each CSR category – was generated based on existing CSR instruments developed by Maignan and Ferrell (2001) and scripts from the

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interviews. All items used six-point Likert scales (1 = strongly disagree; 6 = strongly agree). Measurement items for the three types of trust were drawn from previous studies. Three items assessing expertise trust (e.g., The XYZ company is competent and effective in producing great products and delivering services.) were adopted from McKnight et al. (2002) and White (2005). Three integrity trust items (e.g., The XYZ company is truthful and sincere.) were adopted from McKnight et al. (2002). Social benevolence trust was earlier defined as the consumer's belief that a corporation is genuinely concerned with improving the welfare of society rather than the welfare of consumers. The existing scales tended to reflect consumers' beliefs regarding a firm's concern with the welfare and interests of consumers only (Ganesan, 1994; Mayer et al., 1995; McKnight et al., 2002: White, 2005). Three items were subsequently developed by modifying the existing measurement items (e.g., The XYZ company cares about the wellbeing of our society.). Lastly, we used the three-item scale for corporate reputation by Weiss et al. (1999) (e.g., The XYZ company is a highly-regarded company.). This study used well-known Korean corporations whose CSR activities and reputations were assessed by respondents. One is Korea's leading electronics company, while the other is the biggest telecommunications company in Korea. These are two of the largest Korean corporations that are highly familiar to Korean consumers since many use their products and their performance may directly or indirectly impact the economic situations of many Korean families. The total sample was divided into two, and each group (n = 284, for the electronics company, n = 310, for the telecommunication company) was asked to provide their responses about one company. For the final data analysis, responses from the two groups were aggregated. 4. Analysis and results Data analysis was conducted in three phases. First was measurement analysis. Second, the structural relationships among the key constructs were estimated and the results were used to test H1 to H11. Finally, mediating effects of the three types of trust were examined. 4.1. Measurement analysis Corporate social responsibilities: The assessment of measurement properties (reliability and validity) for the proposed CSR scale with 28 items and its item purification were carried out in an iterative procedure (Kim & Lee, 1997). The item purification process resulted in 19 items measuring four categories of CSR initiatives with Cronbach's αs ranging from 0.81 to .86. In the subsequent stage, the four-factor structure with 19 items was subjected to a confirmatory factor analysis (CFA) using LISREL VIII (Jöreskog and Sörbom, 1993). CFA results showed a satisfactory fit (χ2 = 460.24, df = 146, p = 0.00, CFI = 0.94, AGFI = 0.90, NFI = 0.92). Convergent validity was assessed using the significance and magnitude of factor loadings. The magnitudes of factor loadings ranged from 0.66 and 0.86 and all loadings were significant (p b 0.01). The average trait variance accounted for by each group of items were: 65.7% for “economic responsibilities,” 56.5% for “legal responsibilities,” 49.2% for “ethical responsibilities,” and 58.5% for “philanthropic responsibilities.” According to Bagozzi and Yi (1991), a trait variance greater than 50% is regarded as strong evidence for convergent validity. Discriminant validity among the four categories of CSR initiatives were examined by performing a χ2 difference test between the model where all the factor correlations were fixed at 1.0 and the unconstrained model. The constrained model showed a significantly poorer fit compared to the unconstrained model (Δχ2 = 701.17, df = 6, p = 0.00). This suggests that the four CSR initiatives were discriminant of one another.

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Trust and corporate reputation: Evaluations of measurement properties for the three-dimensional trust scale (9 items) and the corporate reputation scale (3 items) were carried out. None of the items was deleted in the item purification process. Cronbach's α ranged from 0.84 to 0.93. CFA subsequently conducted on the four-factor measurement model with twelve items showed a satisfactory model fit (χ2 = 222.23, df = 48, p = 0.00, CFI = 0.97, AGFI = 0.90, NFI = 0.96). Convergent validity was evaluated based on the significance and magnitude of factor loadings. The magnitudes of factor loadings ranged from 0.76 and 0.99, and all the loadings were significant (p b 0.01). The average trait variance accounted for by each group of items was: 89.9% for “expertise trust,” 83.3% for “integrity trust,” 65.4% for “social benevolence trust,” and 92.0% for “corporate reputation.” These figures show a quite satisfactory level of convergent validity for the trust and reputation scales. In order to examine the discriminant validity among the four factors, a χ2 difference test was conducted between the CFA model where all the factor correlations were fixed at 1.0 and the unconstrained model. The constrained model showed a significantly poorer fit compared to the unconstrained model (Δχ2 = 2135.96, df = 6, p = 0.00), providing evidence that these four factors were discriminant of one another. The use of single rater's responses to measure all constructs in the model presented a risk of biasing the parameter estimates with common method effect. In order to assess common method effect stemming from the use of common rater, Harman's single-factor test was carried out for all the measurement items (Podsakoff & Organ, 1986). If a common method bias was present in the data, a single factor would account for most of the variance in these variables. Exploratory factor analysis produced five factors with eigenvalues greater than 1.0, where the first factor accounted for only 45.0% of the total variance. Consistent with this result, one-factor CFA model subsequently estimated showed a poor fit (χ2 = 3958.65, df = 434, p = 0.00, CFI = 0.71, AGFI = 0.60, NFI = 0.69). These results presented no evidence that common method effect posed a serious problem.

4.2. Estimation of structural relationships The model in Fig. 1 was estimated using LISREL VIII (Jöreskog and Sörbom, 1993). All constructs were operationalized through their summed scale indexes, resulting in one indicator for its construct. Table 1 shows their means, standard deviations, and correlations. The LISREL analysis showed an acceptable fit of the model (χ2 = 197.59, df = 17, p b 0.00; CFI = 0.93; AGFI = 0.84; NFI = .93). The estimated path coefficients were then examined to test the hypotheses. First, the direct effects of the four CSR initiatives on corporate reputation were examined (H1–H4). Results (see the proposed model estimation in Table 2) revealed that the firm's economic responsibility activities had a positive effect on corporate reputation (γ41 = 0.10, t = 2.28, p = 0.02), supporting H1. The firm's fulfillment of legal responsibilities similarly showed a positive effect on reputation (γ42 = 0.09, t = 2.00, p b .05), supporting H2. On the other hand, neither the firm's ethical nor philanthropic CSR practices showed a significant impact on reputation (γ43 = 0.07, t = 1.32, p = 0.19, and γ43 = 0.02, t = .03, p = 0.76, respectively). Thus, H3 and H4 were not supported. H5–H8 indicate the effects of CSR practices on three different types of trust. The fulfillment of economic responsibilities had a positive effect on the level of expertise trust held by consumers (γ11 = 0.49, t = 13.64, p = 0.00), supporting H5. Legal and ethical CSR practices similarly showed a significant positive impact on integrity trust (γ22 = 0.14, t = 3.52, p = 0.00, and γ23 = 0.63, t = 15.33, p = 0.00, respectively), supporting H6 and H7. Results also showed that the company's philanthropic engagements had a positive effect on social benevolence trust (γ34 = 0.84, t = 37.57, p = 0.00), thereby confirming H8.

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Table 1 Correlations and descriptive statistics of key constructs. Constructs

Mean

St. dev.

1

2

3

4

5

6

7

1. 2. 3. 4. 5. 6. 7. 8.

3.92 3.77 3.70 3.73 4.67 3.47 3.72 4.19

0.91 0.82 0.82 0.84 0.99 0.97 0.90 1.00

0.61 0.62 0.60 0.49 0.54 0.63 0.57

0.73 0.64 0.37 0.60 0.64 0.57

0.75 0.44 0.73 0.75 0.64

0.42 0.68 0.84 0.62

0.30 0.42 0.48

0.74 0.64

0.67

Economic responsibilities Legal responsibilities Ethical responsibilities Philanthropic responsibilities Expertise trust Integrity trust Social benevolence trust Corporate reputation

Note: All correlation coefficients are significant at p = 0.01.

Another set of hypotheses involved the effects of the three types of trust on corporate reputation (H9–H11). Findings (Table 2) confirmed that expertise trust, integrity trust, and social benevolence trust had a positive impact on corporation reputation (β41 = 0.20, t = 6.28, p = 0.00; β42 = 0.26, t = 6.31, p = 0.00; and β43 = 0.23, t = 4.33, p = 0.00, respectively).

4.3. Mediation analysis Investigating the mediating role of trust in the relationship between the firm's CSR activities and its corporate reputation is a key objective for the study. In order to ascertain significant mediation effects, four conditions need to be met: (1) each of the predictor variables (the four CSR initiatives) should have a significant impact on its related trust type; (2) the three types of trust should significantly affect the dependent variable (corporate reputation), (3) the predictor variables should significantly affect the dependent variable, and (4) the impact of the predictor variables on the dependent variable

Table 2 Results of model testing. Fit estimates

χ2

df

Model 1 Model 2 Model 3

197.59 Saturated 222.86

17 21

χ2diff

25.27

Model 1 Proposed model Economic responsibilities ➔ Corporate reputation Legal responsibilities ➔ Corporate reputation Ethical responsibilities ➔ Corporate reputation Philanthropic responsibilities ➔ Corporate reputation Economic responsibilities ➔ Expertise trust Legal responsibilities ➔ Integrity trust Ethical responsibilities ➔ Integrity trust Philanthropic responsibilities ➔ Social benevolence trust Expert trust ➔ Corporate reputation Integrity trust ➔ Corporate reputation Social benevolence trust ➔ Corporate reputation ⁎⁎ p b 0.05. ⁎⁎⁎ p b 0.01.

0.10⁎⁎ 0.09⁎⁎ 0.07

CFI

AGFI

NFI

RMR

0.93

0.84

0.93

0.08

0.92

0.85

0.92

0.10

Model 2 Simple direct model

Model 3 Fully mediated model

0.20⁎⁎⁎ 0.11⁎⁎⁎ 0.26⁎⁎⁎ 0.24⁎⁎⁎

0.02

0.49⁎⁎⁎ 0.14⁎⁎⁎ 0.63⁎⁎⁎ 0.84⁎⁎⁎

0.20⁎⁎⁎ 0.26⁎⁎⁎ 0.23⁎⁎⁎

0.47⁎⁎⁎ 0.14⁎⁎⁎ 0.62⁎⁎⁎ 0.83⁎⁎⁎

0.25⁎⁎⁎ 0.35⁎⁎⁎ 0.35⁎⁎⁎

should not be statistically significant or be reduced after accounting for the effects of the mediator variables (three types of trust) (Andrews, Netemeyer, Burton, Moberg, & Christiansen, 2004; Baron & Kenny, 1986). The first two conditions were tested by estimating Model 3 (the fully mediated model) in Table 2 which specifies that the four categories of CSR initiatives can influence corporate reputation indirectly through three types of trust. Model 3 showed an acceptable fit (χ2 = 222.86, df = 21; CFI = 0.92; AGFI = 0.85; NFI = 0.92). Each of the predictor variables showed a significant impact on its related type of trust, and all three types of trust (i.e., expert trust, integrity trust, social benevolence trust) had a significant effect on corporate reputation. Therefore, the first two conditions were met. The third condition was tested using Model 2 (the simple direct model). Since Model 2 is saturated, it showed a perfect fit to the data. The model estimation results in Table 2 show that all four categories of CSR initiatives had a significant effect on corporate reputation. Therefore, the third condition was satisfied. Lastly, comparisons of the magnitudes as well as the significance levels of the path coefficients linking the four categories of CSR initiatives and corporate reputation between Model 1 (the proposed model) and Model 2 (the simple direct model) allowed a test of whether the fourth condition was met. As shown in Table 2, the magnitudes of the predictor variables' path coefficients in Model 1 are smaller than those in Model 2. In terms of significance levels, all of the predictor variables in Model 2 were statistically significant. However, in Model 1, only two of the four predictor variables had a significant path coefficient. These results satisfy the fourth condition. Hence, all four conditions were satisfied, and this ascertains the presence of significant mediating effects of the three types of trust. A further point of interest was whether the mediation was of the “full” or “partial” kind. In order for full mediation to exist, two additional conditions had to be met: (1) the fit of Model 1 should not be better than that of Model 3, and (2) all the path coefficients of the predictor variables to the dependent variable should be statistically insignificant in Model 1 (Andrews et al., 2004). The estimated χ2 statistics for Model 1 and Model 3 were 197.59 (df = 17) and 222.86 (df = 21), respectively. The χ2 difference value of 25.27 for four degrees of freedom was significant (p = 0.00). This suggests that Model 1 fits the data significantly better than Model 3. In addition, two of the four path coefficients of the predictor variables in Model 1 were significant. Therefore, the three types of trust partially mediated the effects of the firm's CSR activities on corporate reputation. Thus, H12a, H12b, H12c, and H12d receive support. Table 3 shows all the direct, indirect, and total effects of the four independent variables (four categories of CSR initiatives) on the dependent variable (corporate reputation). All indirect effects were statistically significant (p b 0.05), which further confirms the mediating role of the three types of trust. All total effects of the four CSR initiatives were also statistically significant (p b 0.05). The magnitudes of the total effects indicate that ethical responsibility activities had the largest impact on corporate reputation, followed by those of corporate philanthropic responsibility, economic responsibility, and legal responsibility. Neither

J. Park et al. / Journal of Business Research 67 (2014) 295–302 Table 3 Assessment of the effects of exogenous and endogenous constructs.

A: 1. Economic responsibilities ➔ Corporate reputation 2. Economic responsibilities ➔ Expertise trust ➔ corporate reputation B: 1. Legal responsibilities ➔ Corporate reputation 2. Legal responsibilities ➔ Integrity trust ➔ corporate reputation C: 1. Ethical responsibilities ➔ Corporate reputation 2. Ethical responsibilities ➔ Integrity trust ➔ corporate reputation D: 1. Philanthropic responsibilities ➔ Corporate reputation 2. Philanthropic responsibilities ➔ Social benevolence trust ➔ corporate reputation

Direct effects

Indirect effects

Total effects

0.10⁎⁎

0.09⁎⁎⁎

0.19⁎⁎⁎

0.09⁎⁎

0.03⁎⁎

0.12⁎⁎

0.07

0.16⁎⁎⁎

0.23⁎⁎⁎

0.02

0.18⁎⁎⁎

0.20⁎⁎⁎

⁎⁎ p b 0.05. ⁎⁎⁎ p b 0.01.

301

practices on corporate reputation showed that economic CSR practices had a slightly stronger direct effect (0.10, p b 0.05) than its indirect effect through expertise trust (0.09, p b 0.01), and legal CSR practices had a substantially stronger direct effect on corporate reputation (0.09, p b 0.05) than its indirect effect through integrity trust (0.03, p b 0.05). Therefore, to a lesser extent, consumers may still react to the company's economic and legal CSR practices by building trust in the company's expertise and integrity, which may result in their improved company perceptions. When it comes to the relative impact of each type of CSR initiatives on corporate reputation, this study indicates that ethical CSR initiatives is at the top, followed by philanthropic, economic, and legal CSR initiatives. Underlying this ordering of relative importance may be the Confucian ideology ingrained in Korean culture. Confucian ideology sets high moral standards of behavior for leaders and businesses with power. It is conceivable that Korean consumers under the influence of Confucian culture may have developed high expectations particularly regarding businesses' ethical and philanthropic CSR practices.

5.1. Managerial implications

ethical nor philanthropic CSR practices, despite their large total effects on corporate reputation, had a significant direct effect on corporate reputation. Instead, their total effects were mostly composed of indirect effects through integrity trust (for ethical CSR practices) and social benevolence trust (for philanthropic CSR practices). These provide a further testament to the importance of consumer trust that the firm needs to build with its CSR practices before it can expect to see their positive impact on its corporate reputation. 5. Summary and discussion This study aims to develop a more refined understanding of the link between CSR and corporate reputation by considering a wider range of CSR initiatives and the role of consumer trust as a mediator of the CSR-corporate reputation link. Finding showed that among the four categories of CSR initiatives, the firm's activities of economic and legal responsibility had a significant direct impact on corporate reputation while neither of its ethical nor philanthropic CSR activities had a significant direct impact on corporate reputation. These results, however, do not reveal the whole picture of the CSR-corporate reputation link. The latter two CSR categories – ethical and philanthropic – despite their lack of a direct impact on corporate reputation, showed a significant impact on corporate reputation indirectly through consumers' integrity trust and social benevolence trust, respectively. In other words, the effects of ethical and philanthropic CSR practices on corporate reputation were fully mediated by consumer trust. This finding suggests that ethical and philanthropic CSR practices may initially create and foster consumer beliefs that the company adheres to high ethical standards and cares about society's wellbeing, before they positively impact corporate reputation. These results are in line with Yoon et al.'s (2006) finding that consumers tend to ascribe motives to the corporation's philanthropic activities, and that a perception of sincerity and trustworthiness in the motives results in a positive company evaluation. The results showing that consumer trust partially mediated the effects of economic and legal CSR practices on corporate reputation also deserve notice. Unlike ethical and philanthropic CSR activities, a firm's fulfillment of economic and legal responsibilities may not always go through consumer trust building as an intermediary step toward generating a positive company evaluation by consumers. A decomposition of the total effects of these two categories of CSR

To enhance corporate reputation, past studies recommended that corporations focus on customer orientation and design and provide products with better quality that will satisfy consumers (Walsh et al., 2009; Wang et al., 2003). In line with this view, Brown and Dacin (1997) found that corporate abilities (i.e., fulfillment of economic responsibilities) have a greater impact on consumers' corporate evaluation than the fulfillment of philanthropic responsibilities. Our results, however, showed that all four types of CSR initiatives may benefit corporations in building their reputation. Furthermore, they showed that ethical and philanthropic CSR activities by themselves are not sufficient to enhance corporate reputation, unless they instill integrity trust and social benevolence trust in consumers. This finding is important for managers who have to make tough decisions regarding the allocation of limited corporate resources and prioritization of different strategic options. Managers need to be selective and strategic in exercising philanthropic and ethical responsibilities. When a corporation conducts philanthropic activities for a valuable cause, the firm hopes that consumers make a positive attribution about the firm's motives. However, past studies found that consumers tend to follow a more sophisticated attributional process and could suspect ulterior motives behind a seemingly good corporate behavior (Fein, 1996). Therefore, companies need to be strategic in what philanthropic causes they select (Becker-Olsen, Cudmore, & Hill, 2006) and how to conduct philanthropic activities (Yoon et al., 2006). The strategic selection and implementation of philanthropic activities would generate consumers' social benevolence trust, which in turn should positively affect corporate reputation. Different corporate philanthropic initiatives could result in different customer responses. Likewise, different corporate ethical activities could generate different customer responses (Creyer & Ross, 1997). Folkes and Kamins (1999) found that hiring adult employees in order to avoid hiring under-aged children (in a country where it was not illegal) was found to be not as effective in improving the company's reputation as hiring people from an area suffering from a natural disaster (in the same country). They explained that this was because the latter hiring practice led to a perception that the firm was intrinsically motivated to act ethically (i.e., only for society's welfare), while the former hiring was perceived to be extrinsically motivated (not to look bad). This different diagnosticity of different corporate ethical behaviors suggests that not all corporate ethical behaviors would result in building consumers' integrity trust. Such a finding again alerts corporations to be careful when selecting and implementing their ethical CSR initiatives which could build integrity trust.

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