Does primary stakeholder management positively affect the bottom line? Some evidence from Australia

Abstract

The premise behind stakeholder theory is that firms are comprised of interdependent relationships (?primary stakeholders?) and that firms have a responsibility to manage these relationships strategically in order to meet corporate objectives. Failure to retain the participation of a primary stakeholder group will result in the failure of that corporate system. To test the theory, this research studies the relationship between management of primary stakeholders and firm performance in a sample of Australia firms. The results suggest that some primary stakeholder groups, but not all, positively affect firm performance. More specifically, corporate governance and employee management were significantly and positively associated with performance. On the other hand, environmental performance and social impact, while significant, had a negative association with performance. The study, to a degree, confirms stakeholder theory. However, rather than offering equal attention to all primary stakeholders, the implications of this research suggest that firms might favour those stakeholder groups that can most positively affect their performance.