Corporate social responsibility and value added in the supply chain: Model and mechanism

The nature of the performance effects of corporate social responsibility (CSR) has long been debated, yet gaps in the literature remain. In this study, we demonstrated that does it “pay to be good” in the supply chain. Specifically, we explored whether a firm's CSR activities impact value added in the supply chain. Building on theoretical foundations of the O-ring theory of economic development, we developed a production function describing processes subject to mistakes made by any of several suppliers in production networks and the potential impact CSR could have on value-added creation. Our results provide evidence for a positive significant relationship between value-added in the supply chain and the disclosure of CSR reports, implying that the net effect of CSR disclosure is, on average, value-added enhancing rather than value-added destroying for the supply chain in our sample. Notably, we verified that these results are not only driven by increases in CSR disclosure and related improvements in firm performance but also create spillover effects in the supply chain. Thus, by integrating CSR into their bottom line, companies can practice sustainability initiatives and add value throughout their supply chain.