The Impact of Corporate Social Responsibility on the Company’s Financial Performance

Cover Page

Cite item

Full Text

Abstract

This article empirically evaluates the impact of CSR behaviour on the financial indicators of 286 companies from Brazil, Russia, India, and China over six years from 2013 to 2018. Company information and CSR ratings were retrieved from the Bloomberg and RobetaSAM databases, and hypotheses were proposed based on a literature review. We constructed various analytical models that differ in dependent variables to better evaluate of distinct CSR metrics through different regression methods. Analyzed factors include: (1) the presence of women on the board; (2) the presence of a company in CSR ratings, and (3) various cultural aspects of the society where companies operate.

Our results support the conclusions of related research in this field of study. Among other consequences, our analysis indicates that CSR significantly influences financial performance, although this is also contingent on external factors. A company’s presence in the CSR rating scale has a more substantial impact on profitability and market capitalization indicators than the actual score itself. CSR information disclosure has some effect on ROA and ROE, and the presence of women in the board of Directors showed a slight positive effect on market capitalization. Further, a high level of ‘power distance’ (i.e. the ostensible alienation of the general citizenry from political authority sources) in the society where company operates harms the relationship between the rating score and financial performance.

About the authors

A. Potapova

Author for correspondence.
Email: anastpot2512@gmail.com

Z. Wang

Email: wangzhen@cup.edu.cn

A. Steblyanskaya

Email: alina_steblyanskaya@hrbeu.edu.cn

References

  1. O’Connor M., Spangenberg J.H. A methodology for CSR reporting: Assuring a representative diversity of indicators across stakeholders, scales, sites and performance issues. Journal of Cleaner Production. 2008;16(13):1399–1415. https://doi.org/10.1016/j.jclepro.2007.08.005
  2. Giannarakis G., Konteos G., Zafeiriou E., Partalidou X. The impact of corporate social responsibility on financial performance. Investment Management and Financial Innovations. 2016;13(3–1):171–182. https://doi.org/10.21511/imfi.13(3-1).2016.03
  3. McGuire J.B., Sundgren A., Schneeweis T. Corporate social responsibility and firm financial performance. Academy of Management Journal. 1988;31(4):854–872. https://doi.org/10.2307/256342
  4. Perrini F. Building a European portrait of corporate social responsibility reporting. European Management Journal. 2005;23(6):611–627. https://doi.org/10.1016/j.emj.2005.10.008
  5. Galant A., Cadez S. Corporate social responsibility and financial performance relationship: A review of measurement approaches. Economic Research = Ekonomska Istraživanja. 2017;30(1):676–693. https://doi.org/10.1080/1331677X.2017.1313122
  6. Waddock S.A., Graves S.B. The corporate social performance–financial performance link. Strategic Management Journal. 1997;18(4):303–319. https://doi.org/10.1002/(SICI)1097-0266(199704)18:4<303::AID-SMJ869>3.0.CO;2-G
  7. Bhatia A., Makkar B. CSR disclosure in developing and developed countries: A comparative study. Journal of Global Responsibility. 2020;11(1):1–26. https://doi.org/10.1108/JGR-04-2019-0043
  8. Brammer S., Millington A. Does it pay to be different? An analysis of the relationship between corporate social and financial performance. Strategic Management Journal. 2008;29(12):1325–1343. https://doi.org/10.1002/smj.714
  9. Lima Crisóstomo V., de Souza Freire F., Cortes de Vasconcellos F. Corporate social responsibility, firm value and financial performance in Brazil. Social Responsibility Journal. 2011;7(2):295–309. https://doi.org/10.1108/17471111111141549
  10. Cho S.J., Chung C.Y., Young J. Study on the relationship between CSR and financial performance. Sustainability. 2019;11(2):343. https://doi.org/10.3390/su11020343
  11. Soana M.-G. The relationship between corporate social performance and corporate financial performance in the banking sector. Journal of Business Ethics. 2011;104(1):133. https://doi.org/10.1007/s10551-011-0894-x
  12. Devinney T.M. Is the socially responsible corporation a myth? The good, the bad, and the ugly of corporate social responsibility. Academy of Management Perspectives. 2009;23(2):44–56. https://doi.org/10.5465/amp.2009.39985540
  13. Wood D.J., Jones R.E. Stakeholder mismatching: A theoretical problem in empirical research on corporate social performance. The International Journal of Organizational Analysis. 1995;3(3):229–267. https://doi.org/10.1108/eb028831
  14. Tsoutsoura M. Corporate social responsibility and financial performance. Applied Financial Project. 2004. URL: https://escholarship.org/uc/item/111799p2
  15. Yan Y.-C., Chou L.-C., Chang T.-C., Darcy J. The impact of social responsibility on corporate performance: Evidence from Taiwan. Accounting and Finance Research. 2017;6(2):181. https://doi.org/10.5430/afr.v6n2p181
  16. Albuquerque R., Koskinen Y., Zhang C. Corporate social responsibility and firm risk: Theory and empirical evidence. Management Science. 2019;65(10):4451–4469. https://doi.org/10.1287/mnsc.2018.3043
  17. Kim W.S., Park K., Lee S.H. Corporate social responsibility, ownership structure, and firm value: Evidence from Korea. Sustainability. 2018;10(7):2497. https://doi.org/10.3390/su10072497
  18. Harjoto M., Laksmana I. The impact of corporate social responsibility on risk taking and firm value. Journal of Business Ethics. 2018;151(2):353–373. https://doi.org/10.1007/s10551-016-3202-y
  19. Fatemi A., Fooladi I., Tehranian H. Valuation effects of corporate social responsibility. Journal of Banking & Finance. 2015;59:182–192. https://doi.org/10.1016/j.jbankfin.2015.04.028
  20. Vartiak L. CSR reporting of companies on a global scale. Procedia Economics and Finance. 2016;39:176–183. https://doi.org/10.1016/S2212-5671(16)30276-3
  21. Ioannou I., Serafeim G. The consequences of mandatory corporate sustainability reporting. SSRN Electronic Journal. 2011. https://doi.org/10.2139/ssrn.1799589
  22. Cahan S.F., Villiers C.D., Jeter D.C., Naiker V., Van Staden C.J. Are CSR disclosures value relevant? Cross-country evidence. European Accounting Review. 2016;25(3):579–611. https://doi.org/10.1080/09638180.2015.1064009
  23. Sinclair-Desgagné B., Gozlan E. A theory of environmental risk disclosure. Journal of Environmental Economics and Management. 2003;45(2):377–393. https://doi.org/10.1016/S0095-0696(02)00056-6
  24. Balabanis G., Phillips H.C., Lyall J. Corporate social responsibility and economic performance in the top British companies: Are they linked? European Business Review. 1998;98(1):25–44. https://doi.org/10.1108/09555349810195529
  25. Holder-Webb L., Cohen J.R., Nath L., Wood D. The supply of corporate social responsibility disclosures among U.S. firms. Journal of Business Ethics. 2009;84(4):497–527. https://doi.org/10.1007/s10551-008-9721-4
  26. Coleman L., Maheswaran K., Pinder S. Narratives in managers’ corporate finance decisions. Accounting and Finance. 2010;50(3):605–633. https://doi.org/10.1111/j.1467-629X.2010.00343.x
  27. Limkriangkrai M., Koh S., Durand R.B. Environmental, social, and governance (ESG) profiles, stock returns, and financial policy: Australian evidence. International Review of Finance. 2017;17(3):461–471. https://doi.org/10.1111/irfi.12101
  28. Fatemi A., Glaum M., Kaiser S. ESG performance and firm value: The moderating role of disclosure. Global Finance Journal. 2018;38:45–64. https://doi.org/10.1016/j.gfj.2017.03.001
  29. Mills D.L., Gardner M.J. Financial profiles and the disclosure of expenditures for socially responsible purposes. Journal of Business Research. 1984;12(4):407–424. https://doi.org/10.1016/0148-2963(84)90022-5
  30. Hyun E. How third-party CSR evaluation matters: Keeping up with rivals in CSR performance ratings of Korean firms, 2011–2015. Sustainability. 2017;9(11):2137. https://doi.org/10.3390/su9112137
  31. Dobers P., Halme M. Corporate social responsibility and developing countries. Corporate Social Responsibility and Environmental Management. 2009;16(5):237–249. https://doi.org/10.1002/csr.212
  32. Baughn C.C., Bodie N.L. (Dusty), McIntosh J.C. Corporate social and environmental responsibility in Asian countries and other geographical regions. Corporate Social Responsibility and Environmental Management. 2007;14(4):189–205. https://doi.org/10.1002/csr.160
  33. Peng C.-W., Yang M.-L. The effect of corporate social performance on financial performance: The moderating effect of ownership concentration. Journal of Business Ethics. 2014;123(1):171–182. https://doi.org/10.1007/s10551-013-1809-9
  34. Nelling E., Webb E. Corporate social responsibility and financial performance: The ‘virtuous circle’ revisited. Review of Quantitative Finance and Accounting. 2009;32(2):197–209. https://doi.org/10.1007/s11156-008-0090-y
  35. Guiso L., Sapienza P., Zingales L. Does culture affect economic outcomes? Journal of Economic Perspectives. 2006;20(2):23–48. https://doi.org/10.1257/jep.20.2.23
  36. Veenstra K.J., Shi W. The moderating effect of cultural values on the relationship between corporate social performance and corporate financial performance. SSRN Electronic Journal. 2014. URL: http://www.ssrn.com/abstract=2510448
  37. Hofstede G., Hofstede G.J., Minkov M. Cultures and organizations: Software of the mind. 3rd ed. New York: McGraw-Hill Education; 2010. 576 p.
  38. Karolyi G.A. The gravity of culture for finance. Journal of Corporate Finance. 2016;41:610–625. https://doi.org/10.1016/j.jcorpfin.2016.07.003
  39. WVS database. World Values Survey. URL: http://www.worldvaluessurvey.org/wvs.jsp (accessed on 13.04.2020).
  40. Country comparison. Hofstede Insights. URL: https://www.hofstede-insights.com/country-comparison/ (accessed on 03.05.2020).
  41. Halkos G., Skouloudis A. Revisiting the relationship between corporate social responsibility and national culture: A quantitative assessment. Management Decision. 2017;55(3):595–613. https://doi.org/10.1108/MD-12-2016-0868
  42. Ranking. SAM Sustainability Yearbook 2020. URL: https://yearbook.robecosam.com/ranking/ (accessed on 27.04.2020).

Supplementary files

Supplementary Files
Action
1. JATS XML
Download

Copyright (c) 2021 Potapova A., Wang Z., Steblyanskaya A.

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.