Research summary
Using collective action and social movement theory, we investigate the potential incentives and ability of stakeholders to engage in collective action that can increase firm‐specific ...nonmarket risk of mining companies. We argue that proximity to the nearest environmentally sensitive water source increases the probability that local stakeholders will take collective actions that impose material costs on the focal mine. We hypothesize that stock markets recognize this nonmarket risk and apply a discount on announcements related to mines located near such areas, and that these risks are moderated by the type of mineral, the nature of the water source, and the strength of host country institutions. Using a unique data set and an event study method, we find support for most of our arguments.
Managerial summary
We argue that mines located near environmentally sensitive water sources are subject to nonmarket risks arising from the potential collective actions of local stakeholders and their allies. Stakeholder mobilization can impose material costs on a mine in the form of delays, regulatory hurdles, and closure. We find that stock markets recognize these nonmarket risks and apply a discount on announcements by mining companies whose mines are located near environmentally sensitive water sources, particularly rivers. However, we also find that investor reaction is stronger in countries with strong institutions that support collective action. Thus, nonmarket risk management is important even in countries that are typically characterized by low political and institutional risks. We discuss the degree to which these results can be generalized beyond mining.
The term social license (SL) refers to the acceptance or approval by a community of a company's presence. It is generally assumed in the literature that effective corporate social responsibility ...(CSR) actions will lead to an SL. In this study we examine the CSR‐SL relationship at the local community level and establish boundary conditions on the effectiveness of local CSR in creating an SL. Using consent‐based micro‐social contract theory, we theorize that commitment to local CSR improves the level to which a local community grants an SL to a multinational corporation (MNC), but the impact is moderated by the global legitimacy of the parent company, the nature of institutions in the host country, and the degree of polarization within the focal community. Based on 3696 articles regarding 43 global mining MNCs operating in 523 local communities between 2008 and 2020, we use natural language processing and sentiment analysis to evaluate the degree to which a local community grants an SL. Our empirical evidence indicates that local CSR does positively influence the granting of an SL, but the effect is reduced when there is strong rule of law or high community polarization and increased when the focal firm has strong global legitimacy.
Although companies recognize the importance of social responsibility and community engagement, conflicts between companies and communities have been noticeably increasing. To better understand the ...role of institutional environments in company–community conflicts, we analyze two mining conflicts—Minera Yanacocha's Minas Conga extension project in Peru and Minera Los Pelambres' El Mauro Tailings Dam in Chile. Our findings imply that, to prevent negative consequences and alleviate company–community conflicts, mining companies should address underlying structural causes and pursue informal approaches in order to obtain and maintain their social license. We find that better formal institutional environments not only alleviate conflict intensity but also facilitate informal approaches through which companies and communities can cooperate to resolve conflicts. The best practice would be to start and continue dialogs between communities and companies, mediated by impartial governments, to understand the concerns of the counterparty and find means by which to address the causes.
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