The Relationship Between Corporate Social Responsibility (csr) and Financial Performance - Csr Is Good for Business

The relationship between corporate social responsibility (CSR) and financial performance- CSR is Good for business.

INTRODUCTION

   The business environment is radically altering. Although social issues have been debated for centuries, only recently Cooperate Social Responsibility (CSR) has become an increasingly important issue worldwide. An increasing number of shareholders, consumers, employees, community organization, governments and stakeholders are asking companies to be accountable and to action for CSR issues, and a growing number of companies are engaged in measure and integrate CSR in to all aspects of their businesses.

   “CSR as a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on the voluntary basis” (European Commission 2001). The CSR concept should be included in the corporate strategies concerning the areas of environmental influence, as well as the society living conditions development, willing behavior and business ethics. Such strategies will then define the codes of conduct based on which the companies implement their operations (AECA, 2004). The Corporate world can’t succeed without taking cognizance of their immediate society.

   The reasons to begin a business might be varied; however, profit is recognized as one of the ultimate goals for the set up. According to the US SIF Foundation, the total value of assets under management related to sustainable, responsible and impact investments rose by more than a third from 2014 to 2016. The 2016 report shows that one out of every five dollars under professional management belonged to CSR. Hence, many studies were concentrated on the link between CSR and corporate financial performance (CFP). This paper will attempt to identify paying for CSR is good for business.  

LITERATURE REVIEW

   The increase in expenditures to enhance the social responsibilities of corporations in the past few decade suggests managers find economic benefits form CSR activities, especially considering the goal of maximizing shareholder value.

McWilliams and Siegel (2001) define CSR as “actions that appear to further some social good, beyond the interest of the firm and that which is required by law.”

   Most previous literature and empirical studies use accounting data to measure financial performance. Relevant literature reviews show varied results between CSR and financial performance; the common perspective is positive, negative and no existence of such a relationship.

   Several studies have supported the positive nexus, for instance, HJ. Palmer (2012) assessed 333 firms included in the S&P 500 for the years 2001-2005. In this study, he examines the impact of cooperate social performance (CSP) and financial performance based on sales and gross margin. He finds CSR positively associated with bottom-line, and also indicates that increased CSP leads to increases in gross margin. This result suggest that some customers are willing to pay the products or services if the firm engage in CSR initiatives. Further, S. Maqbool and M.N. Zameer (2018) examined the relationship between CSR and profitability. Using data from 28 commercial banks, for the period of 10 years. The result shows CSR positively impacts profitability and stock returns. The finding demonstrates that social responsibility initiatives can be considered as strategy creating legitimacy, reputation, and competitive advantages. Similarly, Kim and Kim (2014) studied CSR in restaurant industry, examines CSR and its influence on shareholders based on systematic risk and Tobin’s Q. The result shows that CSR activates were found to enhance shareholder value by increasing Tobin's Q, while companies with lower CSR performance reduced shareholder value by increasing the risk. According to Kim and Kim (2014), CSR enhances firm’s reputation and improves its image to the society which in turn boots financial performance in the sense that builds the positive relationship with stakeholders (employees, customers, etc.) to support firm’s core business, favoring shareholder’s interests. Lastly, Skare and Golja (2012) presents the comparative analysis of financial performances by dividing 90 companies selected form Fortune 500 World to two sectors. The 45 CSR corporations listed on Dow Jones Sustainability World Index 2009/2010 were chosen as CSR companies, while the other 45 as non CSR corporations. from 2006 to 2008. The result shows that the probability in CSR corporations is 6 times higher than that of non-CSR corporations.

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