The goal of the paper is to identify the relationship between corporate social irresponsibility (CSI) and firm profitability. Using the varieties of capitalism (VoC) framework, it distinguishes between liberal market economies (LMEs) and coordinated market economies (CMEs) to explore the impact of country-level determinants on stakeholder salience. Controlling for endogeneity, we analyze a sample containing a total of 5,216 firm-year observations from the United Kingdom, Germany, France, Italy, Poland, and Spain. In line with our theoretical model, the results reveal a negative association between CSI and firm profitability across the whole sample, with a more profound effect being observed for the LME case. Addressing the calls for better understanding of the CSI consequences, as well as institutional differences among European countries, we draw upon stakeholder theory and examine the consequences of corporate wrongdoing on firm profitability. We emphasize that the CSI-profitability link is dependent on the institutional environment which determines stakeholder salience, possession of residual claims on profits or influence capacity.
