How Does Corporate Social Responsibility Moderate the Adverse Effects of Product Failure in Social Media?

Abstract

The research problem: This paper investigates how corporate social responsibility (CSR) moderates the adverse effect of product failure on promoting tweeting about a firm’s products, which subsequently affects sales growth. Motivation or theoretical reasoning: Under the social contract theory, high-CSR-performance firms gain social approval and acceptance as they are perceived to have fulfilled their obligations and met society’s expectations. Society is more forgiving to these firms when they are involved in negative events such as product failure. The test hypotheses: We hypothesized that firms’ CSR performance moderates the negative effect of product failure on tweet sentiment and that the increase in tweet sentiment leads to higher future sales growth. Target population: We focused on the automotive industry due to its vast consumer base. We sampled all 16 car manufacturers that operate in the US. Adopted methodology: Using aspect-based sentiment analysis, we identified 302,718 tweets from Twitter about the quality of cars and extracted the tweet sentiment. We used the car recall records to proxy for product failure. Analyses: Multivariate regressions were used to test our hypotheses. Findings: We found that firms’ CSR mitigates the negative effect of product failure on tweet sentiment about product quality and, subsequently, promotes sales growth. Our findings show that firms with strong CSR received significantly more net positive tweets than did those with weak CSR. Moreover, a 10% increase in net positive tweets was associated with a 0.43% increase in quarterly sales growth ([Formula: see text]). Of the three CSR types, governance CSR exerted the strongest effect on tweet sentiment and environmental CSR the second, while social CSR ranked the third. This paper extends the literature by investigating the effect of CSR on sales growth by altering social media tweeting.