Corporate Ethics and Corporate Social Responsibility in Reinforcing Consumers Bonding: An Empirical Study in Controversial Industry

Corporate Ethics and Corporate Social Responsibility in Reinforcing Consumers Bonding: An Empirical Study in Controversial Industry

Ari Setiyaningrum (Diponegoro University, Indonesia) and Vincent Didiek Wiet Aryanto (Dian Nuswantoro University, Indonesia)
DOI: 10.4018/978-1-5225-3153-1.ch053
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Abstract

Corporate ethics (CE) and corporate social responsibility (CSR) have been considered as the main determinants of companies' success as well as sustainability for company's viability. Both of them potentially affects on consumer buying behavior. This study aims at exploring the basic issue on CE and CSR. In addition, this study examines whether good corporate ethics and CSR engagement of companies always lead to positive consumer response in the context of controversial tobacco's company. Data collected by distributing questionnaires to the 318 respondents. By means of structural equation modeling (SEM) to examine the proposed model, it indicated that the more well-defined of corporate ethics lead to the better evaluation of CSR activities, the more well-defined of corporate ethics and the better evaluation of CSR activities lead to the good corporate reputation. In addition, the good corporate reputation leads to the higher corporate trust, and the higher corporate trust lead to the stronger consumers bonding.
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Introduction

Corporate ethics as well as Corporate Social Responsibility (CSR) have been considered as the drivers of companies’ success and sustainability in the long run. Couple of previous studies indicated that behavioral ethics and CSR are powerful to improve companies’ performance (Beurden & Gossling, 2008; Buciuniene & Kazlauskaite, 2012; Joyner & Payne, 2002; Orlitzky, Schmidt, & Rynes, 2003). In consumer perspectives, corporate ethics and CSR have potential significant capability to influence consumer buying behavior (Laczniak & Murphy, 1993; Singhapakdi & Karande, 2001). Basically, consumers considered both economic and non-economic criteria when they make purchase decision for a product. Corporate ethics and CSR have been recognized as non-economic factors. When consumers faced numerous varieties of products, similar quality and price, they considered non-economic factors of a product (Elizabeth H. Creyer & Ross, 1997; Drumwright, 1994; Lois A. Mohr & Webb, 2005). Contended that Companies implemented business ethics practice as well as actively involved on CSR activities commonly perceived as the good corporate citizens by consumers and this recognition allowed the companies to differentiate themselves from the competitors and to attract customer loyalty (Cacioppe, Forster, & Fox, 2008).

Earlier studies concerning the effect of corporate ethics, CSR and company’s products indicated that basically, consumer has positive responses and appreciations to the responsible company. Consumer’s positive responses to the company and its products offered, can be demonstrated through consumer willingness to pay higher for the products. Ethical and social responsible company generates consumer appreciations to buy the products. Otherwise, the unethical and unsocial behavior of company lead to boycott the products and require the lower price for the products offered by unethical and unsocial responsibility company (Brown & Dacin, 1997; Elizabeth H. Creyer & Ross, 1996; Elizabeth H. Creyer & Ross, 1997; Dutta & Singh, 2013; Ellen, Webb, & Mohr, 2006; Sen & Bhattacharya, 2001; Smith & Alcorn, 1991). In the context of consumer goods, Stanaland, Lwin, and Murphy (2011) indicated that corporate ethics and CSR positively affect on corporate reputation and corporate trust and ultimately lead to the lower perceived risk and the higher consumer loyalty. On the other hand, L. A. Mohr, Webb, and Harris (2001) found that even though consumer positively responses on the ethical and social responsibility company, consumers were not regularly use this consideration when they made a purchase decision. In the retailer context, Webb and Mohr (1998) confirmed that consumer conviction on ethics behavior and CSR was not always consistent with consumer buying behavior. Webb and Mohr (1998) revealed that corporate reputation as the ethical and social responsibility company was not considered as the main determinant in consumer purchase decision since as a matter of fact, consumers prefer to shop in the retailer offered the higher quality products and lower price than retailer which has actively involved in social responsibility activities.

However, previous studies on corporate ethics and CSR put emphasis on uncontroversial company’s context. Study on corporate ethics and CSR in the context of controversial companies is an interesting topic to investigate, but unfortunately, it has not yet conducted by earlier researchers, especially in developing countries like the Asia region countries. Controversial companies in this study cover all of companies which characterized by the existence of social bans, moral debates, and political pressures associated with the products. (Cai, Jo, & Pan, 2012). The companies that include in controversial companies are cigarette or tobacco companies, alcohol companies, weapons companies, and other companies which their products considered contradictory with either the moral, social, environmental, and ethical issues.

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