Corporate social responsibility and vertical integration

As firms slice their value chains into ever smaller pieces through outsourcing, their exposure to reputational spillovers associated with potential third-party misconduct increase. This may threaten the success of their corporate social responsibility (CSR) strategies. We examine whether firms vertically integrate - more or less- in light of their CSR commitments. Controlling for endogeneity, results show that high CSR performance commands higher levels of vertical integration (VI). Results are consistent with a transaction costs economics logics. Moreover, they hold with more force under high buyer’s asset specificity and geographic diversification that further increase costs of suppliers’ monitoring and, in turn, of outsourcing. Findings suggest that high CSR performers will face growing outsourcing costs, increasing the attractiveness of VI to keep supply chain operations under control.