Corporate social responsibility and financial performance: the “virtuous circle” revisited

Corporate social responsibility and financial performance: the “virtuous circle” revisited We examine the causal relation between corporate social responsibility (CSR) and financial performance. Consistent with past studies, we find that the two variables appear to be related when we use traditional statistical techniques. However, using a time series fixed effects approach, we find that the relation between CSR and financial performance is much weaker than previously thought. We also find little evidence of causality between financial performance and narrower measures of social performance that focus on stakeholder management. Our results suggest that strong stock market performance leads to greater firm investment in aspects of CSR devoted to employee relations, but that CSR activities do not affect financial performance. We conclude that CSR is driven more by unobservable firm characteristics than by financial performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Corporate social responsibility and financial performance: the “virtuous circle” revisited

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Publisher
Springer US
Copyright
Copyright © 2008 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-008-0090-y
Publisher site
See Article on Publisher Site

Abstract

We examine the causal relation between corporate social responsibility (CSR) and financial performance. Consistent with past studies, we find that the two variables appear to be related when we use traditional statistical techniques. However, using a time series fixed effects approach, we find that the relation between CSR and financial performance is much weaker than previously thought. We also find little evidence of causality between financial performance and narrower measures of social performance that focus on stakeholder management. Our results suggest that strong stock market performance leads to greater firm investment in aspects of CSR devoted to employee relations, but that CSR activities do not affect financial performance. We conclude that CSR is driven more by unobservable firm characteristics than by financial performance.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: May 14, 2008

References

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