This paper conceptualises and explains the contexts, contingencies, and impacts of new business-government relationships in terms of sustainability. We investigate how corporations can best support public governance to improve societal outcomes and determine the role of different corporate governance systems in fostering positive interactions with the government. Using the case of Tunisia, a transitional democracy with shared institutional features in Africa and the Middle East, we explore the dynamics of social and environmental sustainability within a legal framework that mandates corporate social responsibility (CSR) and sustainability. By expanding Hall and Soskice’s ‘Varieties of Capitalism’ (VOC), Matten and Moon's ‘Explicit and Implicit CSR’, and Knudsen and Moon’s ‘CSR-Government Relationships’, we examine social and environmental practices among multinational corporations and state-owned enterprises in Tunisia's extraction sector. Interviews and analysis of legal and policy documents reveal a strong ‘bottom-up’ demand for CSR, catalysed by the 2011 Jasmine Revolution, leading to significant state-led sustainability initiatives with interactions of private corporations. We critically assess the government's role in sustainable development, focusing on strategies to reduce poverty and regional inequalities. The findings provide implications for CSR policy and practice in similar emerging markets, emphasising the importance of collaborative state–private governance for sustainable development.

Introduction

This paper explores whether investor behavior is more closely related to a monetary objective only (wealth maximization) aligned with the shareholder approach, or both monetary and social objectives (welfare maximization) aligned with the stakeholder approach. These financial and social preferences can differ among investors, as they may have varying risk appetites, distinct opinions, and unique expectations. This heterogeneity may also come from their socio demographic profiles; in our study, we focus on age and gender since young and old investors, as well as female and male investors, may have different preferences. Men, typically associated with agentic traits, may focus solely on financial objectives, while women, often associated with communal traits, are likely to include social considerations as well. Furthermore, young investors presumably staying longer on the planet may be reasonably more oriented to social objectives (environmental protection, climate issues, etc.) than older investors.

To thoroughly explore our research question: "What are the preferences of individual investors for CSR?", we opted for an experimental approach based on a trading simulation. This research design is particularly well-suited as it facilitates an in-depth investigation of investor preferences at the individual level (Kagel and Roth, 1995). By replicating real-world trading scenarios within a controlled environment, our simulation enables us to observe and analyze the decision-making process of investors when confronted with CSR-related events. This approach not only offers direct insights into their preferences but also allows us to isolate and understand the specific influences of CSR on individual investment choices, providing a robust framework to examine the intricate dynamics between CSR and investor behavior. We collect individualized data about participants: their profile (including our moderating variables, age and gender) and their trading reaction to a simulated corporate donation. Market participants react to the news of the corporate donation by trading (buy, sell, hold) according to their preferences for CSR. The methodology used in our research allows us to make causal inferences by manipulating our independent variable (the amount of the corporate donation) in a controlled setting. We observe trading decisions at the individual level, allowing us to infer whether the preferences of each participant are closer to a monetary objective only and to both monetary and social objectives.

Theory

The debates around shareholder and stakeholder theories, while pointing at the macro-level (i.e., firms), exert a significant influence at the micro-level (i.e., investors). These investors, far from conventional economic models which assume them to be homogeneous, equivalent “representative agents” (Lucas, 1978), hold in fact different expectations, opinions and needs (Kirman, 1992). They may also differ in their appreciation of CSR, leading them to different trading behavior. For investors, trading is a medium of expression: they will buy stocks if they like the CSR policy of the firm; they will sell stocks if they don’t like the CSR policy of the firm. Moreover, in financial markets, a complex feedback loop often emerges, driven by certain market participants who anticipate the behaviors of others. This phenomenon suggests that individuals base their decisions not only on available market information but also on their predictions about other market players' actions and reactions.

Figure 1 visually summarizes the macro and micro relationships involved in our research and situates where our contribution stands (based on Coleman, 1994). This macro relation may be better understood by studying the micro behavior of individual investors as we do in our experiment. The macro level reflects the fiduciary duties of firm managers and board directors influencing their actual CSR-related behavior. The corporate social responsibility of firms, which may be closer to the shareholder approach or the stakeholder approach, may influence the preferences of individual investors reflecting a monetary objective only (profit maximization) or both monetary and social objectives (welfare maximization). This macro-to-micro influence may take place through ESG information disclosure by firms, SRI products proposed by financial institutions, the regulatory changes, the political debate, and the business media.

In our experiment, following the firm decision to make a corporate donation (the CSR event in our experiment), the trading reaction of individual investors may reflect their financial and social preferences. Moderating variables such as age and gender may help to better explain the mechanism at the micro level. A feedback loop from (some) market participants considering the behavior of other market participants (rational expectations) may take place. The micro-to-macro relationship corresponds to the feedback effect of the stock market (which results from the aggregation of the reactions of all market participants) on firms’ CSR behavior.

Hypotheses development

Based on the theoretical perspectives exposed above, our experiment tests several hypotheses related to individual investors’ reactions to the announcement of a corporate donation. Figure 2 below illustrates the impact of a corporate donation on firm value for different amounts.

Our hypothesis are as follows:

• Hypothesis 1 (monetary objective and short-term view): Market participants always sell stocks when the company announces a corporate donation, and the higher the amount, the higher the quantity of their sell orders.
• Hypothesis 2 (monetary objective and long-term view): Market participants sell stocks when the company announces a corporate donation with a low amount, buy stocks when the company announces a corporate donation with a medium amount, and sell stocks when the company announces a corporate donation with a high amount.
• Hypothesis 3 (monetary and social objectives): Market participants sell stocks when the company announces a corporate donation with a low amount, buy stocks when the company announces a corporate donation with a medium amount, and buy stocks when the company announces a corporate donation with a high amount.
• Hypothesis 4 (gender effect): male participants follow H1 or H2, and female participants follow H3.
• Hypothesis 5 (age effect): old participants follow H1 or H2, and young participants follow H3.

RESULTS

Our most important result is the different behavior of younger (Gen Z) compared to older (Gen X and Y) investors, thus revealing their different preferences about CSR. While older investors’ reaction follows a “too little-too much” pattern, remaining closer to the instrumental stakeholder view, younger investors’ reaction follows a “never-too-little” pattern, remaining closer to the pluralistic stakeholder view.

Studies about generations (e.g. Duffy, 2021) contend that it is possible that individuals from the same generation maintain some attitudes or behaviors over time. If that were the case of Gen Z investors, they would keep their current higher preferences for CSR during the next decades. In this sense, the aggregation of micro outcomes (gradually more individual investors adhering to the pluralistic stakeholder view), would have macro impacts on the market, as the Coleman diagram (Figure 1) explains. Furthermore, we contend that this possibly ongoing change in the stock markets would have a feedback effect on firms’ behavior, leading corporate boards to a higher commitment to CSR, and on asset management firms, leading fund managers to a higher attention to CSR performance.

References

Coleman, J. 1994. Foundations of social theory. Cambridge (MA): Harvard University Press.

Duffy, B (2021) The generation myth, New York: Basic Books.

Kagel J.H, Roth A.E. 1995. The Handbook of Experimental Economics, Princeton University Press.

Kirman, A. 1992. Whom or what does the representative individual represent? Journal of Economic Perspectives 6(2): 117–136.

Lucas, R. 1978. Asset prices in an exchange economy. Econometrica 46(16): 1429-1445.

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As social control agents, standard setters play a crucial role in discouraging corporate misconduct. But what if their guidance unintentionally fosters it? We explore this possibility by examining sustainability reporting standards, which increasingly direct firms to focus on material sustainability topics. This shift raises concerns that non-material topics may be neglected and become more vulnerable to misconduct. Drawing on the attention-based view, we analyze how the adoption of the Sustainability Accounting Standards Board (SASB) standards skews attention toward material topics, potentially leading to increased misconduct in non-material areas. Using a sample of STOXX Europe 600 firms (2020–2022), we find that firms adopting SASB standards are more likely to engage in misconduct related to non-material topics. However, this issue is less pronounced in firms with larger boards and more frequent board meetings. Their greater attentional breadth provides broad monitoring, partially offsetting the neglect of non-material issues. These findings highlight the need for cautious use of materiality in sustainability reporting and underscore the importance of attention-based insights in research on social control mechanisms.

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As the concept of 'corporate governance' gains traction as a way of understanding an ever-broadening set of business behaviors, a more effective way of understanding the accumulated knowledge in this area is needed. Governance can involve everthing from actions intended to boost performance to those focused on minimizing ethics problems; mechanisms can be structural or process-related. A new corporate governance typology helps unpack these various foci and also points the way to areas of governance least understood by scholars.