This study examines how the sell-side analysts interpret firms’ corporate social responsibility activities. Specifically, we examine the differential impact of overall, legal, and normative CSR on the analysts’ earnings forecast dispersion, stock return volatility, cost of equity capital, and firm value. Employing a sample of U.S. public firms during 1993–2009, we find that overall CSR intensities reduce analyst dispersion of earnings forecast, volatility of stock return and cost of capital , and increase firm value. However, its impact is reduced for (...) firms with better accounting and disclosure quality. When we disaggregate CSR into legal and normative CSR, we find that legal CSR decreases analysts’ dispersion, stock return volatility, and COC, while legal CSR increases firm value. The sell-side analysts tend to have less information asymmetry regarding the net benefits of pursuing CSR that is required by laws. We find, however, that the benefit of having normative CSR realized in 1 year lag such that analyst dispersion, stock return volatility, COC decrease, respectively, and firm value increases. Furthermore, we find that the benefit of normative CSR is offset for firms with higher accounting and disclosure quality. (shrink)

This study assesses the causal relationship between corporate social performance (CSP) and financial performance (FP). We perform our empirical analyses on a sample of 179 publicly held Canadian firms and use the measures of CSP provided by Canadian Social Investment Database for the years 2004 and 2005. Using the “Granger causality” approach, we find no significant relationship between a composite measure of a firm’s CSP and FP, except for market returns. However, using individual measures of CSP, we find a robust (...) significant negative impact of the environmental dimension of CSP and three measures of FP, namely return on assets, return on equity, and market returns. This latter finding is consistent, at least in the short run, with the trade-off hypothesis and, in part, with the negative synergy hypothesis which states that socially responsible firms experience lower profits and reduced shareholder wealth, which in turn limits the socially responsible investments. (shrink)

The goal of this paper is to examine whether business performance is affected by the adoption of practices included under the term Corporate Social Responsibility (CSR). To achieve this goal, we analyse the relation between CSR and certain accounting indicators and examine whether there exist significant differences in performance indicators between European firms that have adopted CSR and others that have not. The effects of compliance with the requirements of CSR were determined on the basis of firms included in the (...) Dow Jones Sustainability Index (DJSI), and specific accounting indicators were applied to measure performance. For the purposes of this study, we selected one group of firms belonging to the DJSI and another comprised of firms quoted on the Dow Jones Global Index (DJGI) but not on the DJSI. The sample was made up of two groups of 55 firms, studied for the period 1998–2004. Empirical analysis supports the conclusion that differences in performance exist between firms that belong to the DJSI and to the DJGI and that these differences are related to CSR practices. We find that a short-term negative impact on performance is produced. (shrink)

This study investigates the variations in the quality and comprehensiveness of 104 corporate social responsibility reports published by the world’s largest financial institutions in 2012. Using a novel measure of CSR report quality, we examine the impact of certain national, legal, and firm-level factors that might explain differences in the overall quality and extent of coverage of various issues in these reports. Our findings show that legal factors and CSR environment in a firm’s country of headquarters play an important role (...) in firms’ CSR reporting quality. Common law countries exhibit systematically higher overall CSR reporting quality than code law countries. Countries with higher CSR standards, policies, and regulations in place also produce significantly higher quality CSR reports. Firm size, on the other hand, has no major impact on the overall quality of CSR reports. In further analysis of the individual aspects of CSR disclosures, namely environment, philanthropy, bribery and corruption, and integrity assurance, we document that larger firms report at a higher quality on philanthropy and bribery and corruption. Bribery and corruption is reported at a higher quality in countries with common law tradition, high-quality legal regimes, and high CSR standards and regulations in place. We also observe higher quality integrity assurance in common law countries. CSR-minded countries and countries with low-quality legal environment also report on philanthropy at a higher quality. Finally, we offer guidelines for companies toward improving the quality of their reports, and suggestions for scholars and researchers for further avenues of research. (shrink)

Although existing research evaluates the growth and motivations behind global corporate social responsibility activity, there is little understanding whether these growing commitments generate strategic benefits to their adherents. In this article, we analyze the organizational attributes that underlie the firm’s ability to generate competitive advantage from the adoption of a global CSR framework. We develop hypotheses on economic and reputational benefits and test whether firm performance, organizational resources, and access to business and CSR networks determine these benefits in CSR frameworks. (...) Results from a survey of 213 Spanish global compact business participants strongly support our arguments. (shrink)

In recent years, a growing number of companies in Latin American have initiated specific programs oriented to socially respond to the communities in which they are established. Notwithstanding the importance of these programs and its benefits, it is interesting to note that Latin American countries are different from developed countries in which the trend for corporate social accountability has been initiated and developed. Noting this, the present study develops and tests several hypotheses regarding the effects of corporate social responsibility and (...) work environment on antecedents of company's performance. (shrink)

The objective of this article is double: first, to analyze, using a descriptive analysis, the main differences in the level and components of social behaviour between European and North American firms and, second, to contrast empirically, using a multiple linear regression model, whether the motives behind corporate social behaviour are different depending on the region or country of the firm. With this aim, an indicator of social behaviour (termed effort in sustainability) has been constructed by aggregating the firm's social effort (...) with customers, employees, community and environment for a sample of the 40 European and North American companies most highly reputed in the years 2003 and 2004. The results obtained indicate that the region or country of the firm influences the level, components and motivation of its social behaviour. (shrink)

The relationship between social and financial performance (CSP – FP) has been a main objective in the literature on business management, as it would provide an economic justification for the social investment insofar as it contributes to the creation of value. This relationship has been empirically tested by several authors though without using a theoretical model that sustains this relationship. The aim of this article is to propose a theoretical model of the process of the creation of value from the (...) reputation generated by companies, integrating the factors that have been shown to be more relevant in this process from previous research, in such a way that hypotheses are put forward regarding the existence of this relationship and the factors that determine it. Finally, an empirical test is performed using the 100 most prestigious companies operating in Spain during 2004. (shrink)

In this study, we examine whether corporate environmental responsibility plays a role in enhancing operating performance in the financial services sector. Because achieving success with CER investing is often a long-term process, we maintain that by effectively investing in CER, executives can decrease their firms’ environmental costs, thereby enhancing operating performance. By employing a unique environmental dataset covering 29 countries, we find that the reducing of environmental costs takes at least 1 or 2 years before enhancing return on assets. We (...) also find that reducing environmental costs has a more immediate and substantial effect on the performance of financial services firms in well-developed financial markets than in less-developed financial markets. These results are economically and statistically significant and robust even after alleviating endogeneity and using an additional performance measure. We interpret our empirical results as supporting the social impact and reputation-building hypothesis. Our findings also suggest that policy makers dealing with corporate sustainability management should pursue an environment-centered industry policy not only at the manufacturing sector but also at the financial services sector, as firms in both sectors with lower environmental costs perform better. (shrink)

This paper investigates the effect of corporate social responsibility (CSR) on firm value and seeks to identify the source of that value, by disaggregating the effects on forecasted profitability, long-term growth and the cost of capital. The study explores the possible risk (reducing) effects of CSR and their implications for financial measures of performance. For individual dimensions of CSR, in general strengths are positively valued and concerns are negatively valued, although the effect is not universal across all dimensions of CSR. (...) We show that these valuation effects are principally driven by CSR performance associated with better long run growth prospects, with an additional minor contribution made by a lower cost of equity capital. (shrink)

This article studies how financial investors respond to firms' corporate social responsibility (CSR) performance in terms of their investing behaviors, and how such behaviors change contingent on an event that provokes their attention and concerns to CSR. Using the melamine contamination incident in China as a natural experiment, it is found that neither the individual investors' nor the institutional investors' behaviors are influenced by firms' CSR performance before the incident. Nevertheless, in the post-event period, institutional investors' behaviors are significantly influenced (...) by firms' CSR performance that exceeds a certain threshold. Furthermore, such an effect diminishes for a better CSR performance. In comparison, the authors do not find any effects of CSR performance on individual investors, either before the event or after the event. Finally, firms' performance and investors' behaviors jointly affect firms' stock returns after the event but not before the event. This article reconciles the mixed findings in the literature on the effect of firms' CSR performance on their financial performance by showing that such an effect exists in a contingent manner. Furthermore, the authors show that a too low or a too high CSR performance could lead to undesirable responses from investors. Therefore, managers should pay attention to optimizing firms' CSR activities. (shrink)

This study investigates the effects on organization’s financial performances of, first, the extent to which the organizations are involved in controversial business activities, and second, their level of social performance. These companies can be considered non-socially responsible given the harmful nature of the activities they are involved in. Managers of these companies may still have incentives to pursue socially responsible actions if they believe that engaging on those actions will help them to achieve legitimacy and improve investors’ perception about them. (...) We develop a comprehensive methodology to investigate these corporate social performance (CSP)-related effects in a complex but specific setting. To this end, we analyze a sample of 202 US firms for the period 2005–2008 using a novel method in this area: partial least squares. Our results indicate that, contrary to the general findings in prior literature, companies involved in controversial business activities which engage in CSP do not directly reduce the negative perception that stakeholders have about them. Instead, we found evidence of a positive mediation effect of CSP on financial market-based performance through innovation. (shrink)

In this article, we explore the relationship between corporate social responsibility (CSR) and earnings management (EM). Our CSR index, using KLD data, incorporates information from the following issue areas: the community, corporate governance, diversity, the product, employee relations, the environment, and human rights. Results show that more socially responsible firms have higher quality accruals and less activity-based EM, both of which impact financial reporting quality.

Since the 1970s, many Anglo-American studies have investigated the theme of corporate social responsibility (CSR) and its costs and benefits. Most studies have tried to test, largely in samples of multiple industries, the relationship between corporate social performance (CSP) and corporate financial performance (CFP). These analyses, however, have produced conflicting results and any attempt to give a generalized and coherent conclusion has proved inadequate. This article examines the ways CSP can be proxied and investigates the possible relationship between CSP (measured (...) by ethical rating) and CFP (measured by market and accounting ratios) in the banking sector using correlation methodology. It emerges that there is no statistically significant link between CSP and CFP. (shrink)

Sustainability is concerned with the impact of present actions on the ecosystems, societies, and environments of the future. Such concerns should be reflected in the strategic planning of sustainable corporations. Strategic intentions of this nature are operationalized through the adoption of a long-term focus and a more inclusive set of responsibilities focusing on ethical practices, employees, environment, and customers. A central hypothesis, that we test in this paper is that companies which attend to this set of responsibilities under the term (...) superior sustainable practices, have higher financial performance compared to those that do not engage in such practices. The target population of this study consists of the top 100 sustainable global companies in 2008 which have been selected from a universe of 3,000 firms from the developed countries and emerging markets. We find significant higher mean sales growth, return on assets, profit before taxation, and cash flows from operations in some activity sectors of the sample companies compared to the control companies over the period of 2006–2010. Furthermore, our findings show that the higher financial performance of sustainable companies has increased and been sustained over the sample. Notwithstanding sample limitation, causal evidence reported in this paper suggests that, there is bi-directional relationship between corporate social responsibilities practices and corporate financial performance. (shrink)

A variety of stakeholders including investors, corporate managers, customers, suppliers, employees, researchers, and government policy makers have long been interested in the relationship between the financial performance of a corporation and its commitment to business ethics. As a subject of research, the relations between business ethics and corporate valuation has yet to be thoroughly quantified and investigated. This article is an effort to amend this inadequacy by demonstrating a statistically significant association between ethical commitment and corporate valuation measures. Consistent with (...) anecdotal evidence, we have found a significant association between the ethical commitment of Korean companies and their valuation on the Korean stock market. However, the result reveals that the association between ethical commitment and financial performance is not significantly supported. (shrink)

Previous empirical research has found mixed results for the impact of corporate social responsibility (CSR) investments on corporate financial performance (CFP). This paper contributes to the literature by exploring in a two stage investor decision-making model the relationship between a firm’s innovation effort, CSR, and financial performance. We simultaneously examine the impact of CSR on both accounting-based (financial health) and market-based (Tobin’s Q) financial performance measures. From a sample of top corporate citizens, we find that: (1) a firm’s social responsibility (...) commitment (CSR) contributes to its financial performance; (2) after controlling for investment in innovation activities, CSR continues to have a positive impact on a firm’s financial performance; (3) the customer dimension of CSR has a positive effect on both CFP measures, whereas the employee dimension indicates a significant impact only on financial heath; and (4) the community relation dimension of CSR only affects the market-based CFP measure of firms with high innovation intensity. (shrink)

This article proposes a unified theory of the relationship between corporate social performance (CSP) and corporate financial performance (CFP). The theory provides a framework for rationalizing the various and contradictory findings in past empirical research. The theory is based on the parallels between the business and CSR domains, and thus draws on models from economics.

This study investigates the engagement of family firms in corporate social responsibility. We first compare their corporate social performance to non-family firms. Then, following recent evidence on the heterogeneity of family firms, we examine two factors that may influence CSP within family firms: the level of family control and the governance orientation of the country in which they operate. This research is based on a theoretical framework which considers both agency and socioemotional wealth influences on family firms CSR engagements. Overall, (...) we find that family firms exhibit lower CSP than non-family firms. But when focusing on family firms, our analyses show a curvilinear relationship between family control and CSP. At lower levels of control, family owners invest more in social initiatives to protect their SEW. Beyond a threshold level of control that we estimate at 36 % in our sample, economic considerations prevail over SEW and social performance starts decreasing. We also find that family firms operating in stakeholder-oriented countries are more attentive to social concerns than those operating in more shareholder-oriented countries. (shrink)

In this research, we shed new light on the empirical link between corporate social performance (CSP) and corporate financial performance (CFP) via the application of empirical models and methods new to the CSP–CFP literature. Applying advanced financial models to a uniquely constructed panel dataset, we demonstrate that a significant overall CSP–CFP relationship exists and that this relationship is, in part, conditioned on firms’ industry-specific context. To accommodate the estimation of time-invariant industry and industry-interaction effects, we estimate linear mixed models in (...) our test of the CSP–CFP relationship. Our results show both a significant overall CSP effect as well as significant industry effects between CSP and CFP. In conflict with expectations, the unweighted average effect of CSP on CFP is negative. Our industry analysis, however, shows that in over 17% of the industries in our sample, the effect of CSP on CFP for socially responsible firms is positive. We also examine the multidimensional nature of the CSP construct in an industry context by exploring the CSP dimension–industry nexus and identify dimensions of social performance that are associated with either better or worse financial performance. Our results confirm the existence of disparate CSP dimension–industry effects on CFP, thus our results provide important and actionable information to decision makers considering whether and how to commit corporate resources to social performance. (shrink)

Using a sample of 21,030 US firm-year observations that represents more than 3000 individual firms over the 1998–2012 period, we investigate the relationship between Corporate Social Responsibility (CSR) and investment efficiency. We provide strong and robust evidence that high CSR involvement decreases investment inefficiency and consequently increases investment efficiency. This result is consistent with our expectations that high CSR firms enjoy low information asymmetry and high stakeholder solidarity (stakeholder theory). Moreover, our findings suggest that CSR components that are directly related (...) to firms’ primary stakeholders (e.g. employee relations, product characteristics, environment, and diversity) are more relevant in reducing investment inefficiency compared with those related to secondary stakeholders (e.g. human rights and community involvement). Finally, additional results show that the effect of CSR on investment efficiency is more pronounced during the subprime crisis. Taken together, our results highlight the important role that CSR plays in shaping firms’ investment behaviour and efficiency. (shrink)

Drawing on the Agency-Stewardship approach, which suggests that manager profile may range from the agent model to the steward model, this article aims to examine how important CEOs are to corporate social responsibility (CSR). Specifically, this exploratory study proposes the existence of a relationship between manager profile and CSR practices and that this relation is mediated by the perceived role of ethics and social responsibility. After applying a mediated regression analysis using survey information collected from 149 CEOs in Spain, results (...) show that those closer to the steward model are more inclined to attach great importance to ethics and social responsibility, and to implement CSR practices in their companies. Results also provide support for the suggested mediating effect. Thus, this article extends research in understanding top managers as drivers for CSR and suggests new ways to deal with this issue empirically. (shrink)

The few studies that analyze the impact of a combined strategy of innovation and corporate social responsibility on firm performance mostly focus on financial performance. In contrast, the current study considers the simultaneous impact of technological innovations and CSR on firm growth, which provides a measure of medium-term economic performance. With a sample of 213 firms and a two-step procedure, this study reveals the differentiated effects of strategic versus responsive CSR behavior on the two technological innovation types, as well as (...) the effects of the two innovation types on growth. The findings thus indicate that firms with strategic CSR achieve growth through both their product and their process innovations. (shrink)

An exploratory model is presented as a heuristic to indicate how individual perceptions of corporate reputation (before joining) and corporate ethical values (after joining) generate specific individual organizational senses of fit. The paper suggests that an ethical dimension of person-organization fit may go some way in explaining superior acquisition and retention of staff by those who are attracted to specific organizations by levels of corporate social performance consonant with their ethical expectations, or who remain with them by virtue of better (...) personal ethical fits with extant organizational ethical values. Specifically, the model suggests that individual misfits that arise from ethical expectations that either exceed or fall short of perceived organizational ethical performances lead to problematic acquisition and retention behavioural outcomes. (shrink)