Drivers of Corporate Social Responsibility: Why Firms Withdraw from Russia

In the present paper, we argue that the Russian invasion of Ukraine is an event which reveals firms’ preferences towards corporate social responsibility (CSR) by forcing them to decide whether to stay in the Russian market or whether to withdraw. We develop a framework to comparatively test eight theories on the antecedents of firm-level decision-making on CSR. This framework is grounded in the literature on ethical decision-making, highlighting the possible role of firms’ motivation and corporate governance as antecedents of CSR. Within this framework, we develop four hypotheses on firms’ motivation to engage in CSR by withdrawing from Russia, namely, (1) financial; (2) moral; (3) legal; and (4) political/reputational motivation. We develop four additional hypotheses on the role of corporate governance as an antecedent of engaging in CSR by withdrawing from Russia, namely, (5) agency; (6) stewardship; (7) institutional; and (8) stakeholder theory. We test our framework on a sample of 1158 publicly listed international firms active in the Russian market, obtained from a dataset compiled by the Kyiv School of Economics (KSE) and hand-matched to other firm- and country-level data. Firms’ status of withdrawal is classified by KSE as (i) exited; (ii) leave; (iii) wait; and (iv) stay. We test our model by regressing variables operationalizing the eight outlined hypotheses on firms’ status of withdrawal, using a multinomial logistic regression. Here, we find two main predictors for firms’ withdrawal: First, firms’ financial motivation, where increasing revenue in Russia decreases the likelihood of a full exit of the Russian market, and second, firms’ institutional environment, where firms headquartered in countries with common-law legal origin have a lower likelihood of withdrawal. We conduct robustness checks by running logit and probit specifications, as well as linear probability models, with different binary combinations of the four status categories indicating firms’ withdrawal as dependent variables. Here, we find that stewardship theory predicts withdrawal to a limited extent because CEO duality is shown to decrease the likelihood that firms announce their intention to stay in Russia. Our findings contribute to the literature on CSR, management, and corporate governance by enhancing our empirical understanding of the antecedents of CSR. Thereby, we address two major shortcomings in the literature: First, we develop and apply a framework to test competing theories on the antecedents of CSR. If applied to a wider range of event studies, this can enhance our understanding of how and why firms generate CSR outcomes, and thereby form a strong basis for decision-making by regulators and practitioners. Second, we avoid methodological challenges related to the use of CSR or ESG indices to measure firm-level CSR by using an event study design.