The contribution of this work is a classification of corporate social action underlying the Social Ratings Data compiled by Kinder Lydenburg Domini Analytics, Inc. We compare extant typologies of corporate social action to the results of our exploratory factor analysis. Our findings indicate four distinct latent constructs that bear resemblance to concepts discussed in prior literature. Akey finding of our research is that positive and negative social action are both empirically and conceptually distinct constructs and should not be combined in (...) future research. Additionally, we recommend that some prior research results be reconsidered to determine whether these newly derived measures might clarify some previous findings. (shrink)

We argue that corporate social performance (CSP) has become a legitimizing identity (brand) for researchers in the business and society field, but it has not developed into a viable theoretical or operational construct. Because measuring CSP is contingent on the operational setting (industry, issues, etc.), it is difficult to produce worthwhile comparisons across studies or generalizing beyond the boundaries of a specific study. The authors suggest that researchers remove the CSP label from their operational variables, and instead narrowly define their (...) studies in operational terms. They provide aworking example of the proposed research direction by examining the theory underlying the popular CSP–financial performance (FP) debate. In the authors’ conceptualization, stakeholder action provides the underlying logic connecting CSP-FP, and we recast the research question to investigate the conditions under which stakeholders will take action to influence the focal organization and when those actions will influence the CSP-FP link. (shrink)

This research note analyzes the relationship between indicators of corporate social and financial performance within a comprehensive theoretical framework. The results, based on data for 67 large U.S. corporations for 1982-1992, reveal no significant negative social-financial performance relationships and strong positive correlations in both contemporaneous and lead-lag formulations.

Building on earlier work on the relationship between corporate social performance (CSP) and a firm’s financial performance, this integrative empirical study supports the theoretical argument that the higher a firm’s CSP the lower its financial risk. Specifically, the relationship between CSP and risk appears to be one of reciprocal causality, because prior CSP is negatively related to subsequent financial risk, and prior financial risk is negatively related to subsequent CSP. Additionally, CSP is more strongly correlated with measures of market risk (...) than measures of accounting risk. Of all CSP measures, reputation for social responsibility appears to be the most important one in terms of its risk implications. (shrink)

This article provides empirical results indicating that acting in a socially respon- sible and lawful manner is a necessary, though not sufficient, condition for increasing shareholder wealth. It meta-analyzes 27 event studies that have mea- sured the stock market's reaction to incidences of socially irresponsible and illicit behavior. It finds that for firms engaging in socially irresponsible and illicit behavior, the effect on shareholder wealth is negative (wealth decreases), statisti- cally significant (p <.001), and so substantial in size (D = (...) -.932) that the distribution of abnormal returns is shifted nearly a full standard deviation to the left (i.e., negatively) from their expected standard normal distribution. This result gives rationally self-interested firms a self-interested reason to act in a socially responsible and law-abiding manner. It also provides support for a moral position called enlightened self-interest, which prescribes that firms should act in a socially responsible manner to promote the shareholders' interests. (shrink)

One of the older questions in the debate about Corporate Social Responsibility (CSR) is whether it is worthwhile for organizations to pay attention to societal demands. This debate was emotionally, normatively, and ideologically loaded. Up to the present, this question has been an important trigger for empirical research in CSR. However, the answer to the question has apparently not been found yet, at least that is what many researchers state. This apparent ambivalence in CSR consequences invites a literature study that (...) can clarify the debate and allow for the drawing of conclusions. The results of the literature study performed here reveal that there is indeed clear empirical evidence for a positive correlation between corporate social and financial performance. Voices that state the opposite refer to outdated material. Since the beginnings of the CSR debate, societies have changed. We can therefore clearly state that, for the present Western society, "Good Ethics is Good Business.". (shrink)

Carroll (1991) encouraged researchers in Social Issues Management (SIM) to continue to measure Corporate Social Performance (CSP) from a variety of different perspectives utilizing a variety of different measures. In addition, Wolfe and Aupperle (1991) (and others) have asserted that there is no, single best way to measure CSP and that multiple measures and perspectives help develop the field. However, Pfeffer (1993) suggest that a lack of consistent measurement has constrained organization studies (and by implication, the field of social issues (...) management,) in its development as a field. It may be in the best interest of social issues management researchers to try to development a common body of measures and data. Recently, Kinder, Lydenberg and Domini & Co. (KLD — a social choice investment advisory firm) has made available their social performance database. The KLD data have potential to become a widely accepted set of CSP measures. The purpose of this paper is to present a construct validity study comparing the KLD data to other measures of CSP. (shrink)

One of the older questions in the debate about Corporate Social Responsibility (CSR) is whether it is worthwhile for organizations to pay attention to societal demands. This debate was emotionally, normatively, and ideologically loaded. Up to the present, this question has been an important trigger for empirical research in CSR. However, the answer to the question has apparently not been found yet, at least that is what many researchers state. This apparent ambivalence in CSR consequences invites a literature study that (...) can clarify the debate and allow for the drawing of conclusions. The results of the literature study performed here reveal that there is indeed clear empirical evidence for a positive correlation between corporate social and financial performance. Voices that state the opposite refer to out-dated material. Since the beginnings of the CSR debate, societies have changed. We can therefore clearly state that, for the present Western society, “Good Ethics is Good Business.”. (shrink)

A primary issue in the field of business and society over the past 25 years has been the relationship between corporate social performance and corporate financial performance. Recently, Griffin and Mahon (1997) presented a table categorizing studies that have investigated this relationship. Motivated by concerns with this table, as well as a desire to account for progress in research in this area, the authors reconstructed it. The authors present a portrait of this relationship that is (a) substantially different from that (...) shown in the Griffin and Mahon table and (b) more consistent with the latest research on the topic. (shrink)

Corporate social responsibility is a tortured concept. We review the current state of the art across a number of academic disciplines, from accounting to management to theology. In a world that is increasingly global and pluralistic, progress in our understanding of CSR must include theorizing around the micro-level processes practicing managers engage in when allocating resources toward social initiatives, as well as refined measurement of the outcomes of those initiatives on stakeholder and shareholder interests. Scholarship must also account for the (...) influence of diverse, and even maladaptive, stakeholders as well as more fully incorporate non-Western philosophical and economic perspectives. Based on this review, we pose five questions that scholars from each of these disciplines should address as the CSR field moves forward. We hope our questions provoke deeper thinking and greater rigor and attention to detail in this important area of business research. (shrink)

This article examines the concurrent validity of the Kinder, Lydenberg, Domini Research & Analytics corporate social performance measures. Because KLD changed its evaluation methods to richer approaches, a new look at the concurrent validity of the indicators is necessary. To do this new look, the authors examine the new “Binary” and “Continuous” versions of the KLD and compare them with previous versions of KLD. The results suggest that the continuous scores provide better measurement characteristics than do the binary version. Overall, (...) the new versions of the KLD data demonstrate concurrent validity with the original version. (shrink)

Lack of specificity around stakeholder identity remains a serious obstacle to the further development of stakeholder theory andits adoption in actual practice by business managers. Nowhere is this shortcoming more evident than in stakeholder theory’s treatment of the constituency known as “community.”In this paper we attempt to set forth what we call “the Problem of Community” as indicative of the definitional problems of stakeholdertheory. We then begin the process of gaining greater specificity around our notions of community and the role (...) of community in stakeholder theory and management. In doing so, we identify the emergence of two fairly new forms of community that we believe are particularly relevant to the stakeholder theorist and practicing manager. These two new variants of community—the virtual advocacy group and the community of practice—extend the notion of community in new directions, which have strikingly different implications for stakeholder theory and practice. (shrink)

This study examines whether corporate social responsibility (CSR) towards primary stakeholders influences the financial and the non-financial performance (NFP) of Indian firms. Perceptual data on CSR and NFP were collected from 150 senior-level Indian managers including CEOs through questionnaire survey.Hard data on financial performance (FP) of the companies were obtained from secondary sources. A questionnaire for assessing CSR was developed with respect to six stakeholder groups - employees, customers, investors, community, natural environment, and suppliers. A composite measure of CSR was (...) obtained by aggregating the six dimensions. Findings indicate that stock-listed firms show responsible business practices and better FP than the non-stock-listed firms. Controlling confounding effects of stock-listing, ownership, and firm size, a favorable perception of managers towards CSR is found to be associated with increase in FP and NFP of firms.Such findings hold good when CSR is assessed for the six stakeholder groups in aggregate and for each stakeholder group in segregate. Findings suggest that responsible business practices towards primary stakeholders can be profitable and beneficial to Indian firms. (shrink)

This article investigates the role of commonly specified control variables in moderating the relationship between corporate social performance (CSP) and corporate financial performance (CFP). In addition, there are separate measures for positive (strengths) social actions, and for negative (concerns) social actions. The results support the positive relationship between CSP and CFP. The best model, as determined using factorial analysis of variance, is one which has the following control variables: size, industry, risk, and research and development expenditures. In examining the CSP/CFP (...) relationship, researchers must control for these variables, in order to properly specify the model. (shrink)

This study adds two new perspectives to the long-running debate regarding the linkage between corporate social performance (CSP) and corporate financial performance (CFP): First, we add the aspect of issue materiality and suggest research to put more emphasis on the question of how individual CSP issues can be assumed to systematically influence the business environment from a theoretical point of view. Second, we highlight the measurement level of the underlying data screens as an important determinant of the actual effects of (...) CSP on CFP. Focusing on climate change, we developed a set of questions that cover a firm’s carbon emissions and carbon management strategies. These questions were included in a questionnaire sent out annually to the 2,500 largest companies by market cap within the Dow Jones Global Index by an independent Swiss-based asset management firm. Our results show that when using carbon emissions as an outcome-based measurement, corporate environmental performance pays off. Conversely, when using carbon management as a process-based measurement, we find a negative relationship between corporate environmental performance and CFP. (shrink)

Stakeholder theory provides a framework for investigating the relationship between corporate social performance (CSP) and corporate financial performance. This relationship is investigated by examining how change in CSP is related to change in financial accounting measures. The findings provide some support for a tenet in stakeholder theory which asserts that the dominant stakeholder group, shareholders, financially benefit when management meets the demands of multiple stakeholders. Specifically, change in CSP was positively associated with growth in sales for the current and subsequent (...) year. This indicates that there are short-term benefits from improving CSP. Return on sales was significantly positively related to change in CSP for the third financial period, indicating that long-term financial benefits may exist when CSP is improved. (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)

Although agreement on the positive sign of the relationship between corporate social and financial performance is observed in the literature, the mechanisms that constitute this relationship are not yet well-known. We address this issue by extending management’s stakeholder theory by adding insights from psychology’s prospect decision theory and sociology’s resource dependence theory. Empirically, we analyze an extensive panel dataset, including information on disaggregated measures of social performance for the S&P 500 in the 1997–2002 period. In so doing, we enrich the (...) extant literature by focusing on stakeholder heterogeneity, perceptional framing, and disaggregated measures of corporate social performance. (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)