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.
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The upper and lower limits for the CSR scores are the following: community (−2, 4), diversity (−2, 7), employee relations (−3, 4), and environment (−5, 3).
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Acknowledgements
We thank Eliezer Fich, Jacqueline Garner, Mukunthan Santhanakrishnan, and seminar participants at the 2006 Financial Management Association Annual Meeting for helpful comments.
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Nelling, E., Webb, E. Corporate social responsibility and financial performance: the “virtuous circle” revisited. Rev Quant Finan Acc 32, 197–209 (2009). https://doi.org/10.1007/s11156-008-0090-y
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DOI: https://doi.org/10.1007/s11156-008-0090-y