Financial Performance of Socially Responsible Firms: The Short- and Long-Term Impact

The pressure of society for firms to adopt socially responsible behavior is evident. Yet, Corporate Social Responsibility (CSR) needs an economic justification. In response to this, there exists a comprehensive literature that analyzes the possible relation between social and business financial performance. During the last decade, the literature has been heading toward the carrying out of dynamic studies as researches find that the relationship between social and financial performance is not static. The purpose of this work is to analyze the relevance for the financial performance of Spanish listed firms of maintaining their responsible behavior. To do so, we carry out a comparison between two analyses—one cross-sectional, and the other longitudinal—to be able to conclude whether or not adopting responsible criteria makes a difference in business financial performance in the short and long-term. Some of the results obtained in the cross-sectional study are consolidated in the long-term study. In this sense, responsible firms exhibit a higher systematic risk and have greater size. As a conclusion, be responsible does not mean less stock profitability or a lower business result. It certainly contributes to firms continuing to voluntarily incorporate good corporate social responsibility practices into their business models. What is more, these results support the governmental policies and initiatives that bolster corporate social responsibility.

[1]  Samuel B. Graves,et al.  The corporate social performance-financial performance link , 1997 .

[2]  Andrew King,et al.  Exploring the Locus of Profitable Pollution Reduction , 2002, Manag. Sci..

[3]  F. Schmidt,et al.  Corporate Social and Financial Performance: A Meta-Analysis , 2003 .

[4]  F. Lizarelli,et al.  Do sustainable companies have a better financial performance? A study on Brazilian public companies , 2016 .

[5]  Alma Cohen,et al.  What Matters in Corporate Governance? , 2004 .

[6]  M. Porter,et al.  The competitive advantage of corporate philanthropy. , 2002, Harvard business review.

[7]  Karl Heiner,et al.  Exploringthe Relationship Between Corporate Social Performance and Employer Attractiveness , 2002 .

[8]  S. Hart.  A Natural-Resource-Based View of the Firm , 1995 .

[9]  W. Pan,et al.  A decade's debate on the nexus between corporate social and corporate financial performance: a critical review of empirical studies 2002–2011 , 2014 .

[10]  R. Freeman.  Strategic Management: A Stakeholder Approach , 2010 .

[11]  N. Smith,et al.  Corporate Social Responsibility: Whether or How? , 2003 .

[12]  Ben S. Branch,et al.  Perceptions of Firm Quality: A Cause or Result of Firm Performance , 1990 .

[13]  R. Watson,et al.  Corporate Performance and Stakeholder Management: Balancing Shareholder and Customer Interests in The U.K. Privatized Water Industry , 1999 .

[14]  Ravi Dharwadkar,et al.  Corporate Governance and Corporate Social Responsibility (CSR): The Moderating Roles of Attainment Discrepancy and Organization Slack , 2011 .

[15]  Irene M. Herremans,et al.  An investigation of corporate social responsibility reputation and economic performance , 1993 .

[16]  D. Melé,et al.  Corporate Social Responsibility Theories: Mapping the Territory , 2004 .

[17]  M. Porter,et al.  Creating Shared Value , 2019 .

[18]  Matt Eyring,et al.  Nuevos modelos de negocios en los mercados emergentes , 2011 .

[19]  M. S. Figueras,et al.  Social responsibility practices and evaluation of corporate social performance , 2012 .

[20]  Shawn L. Berman,et al.  Does Stakeholder Orientation Matter? The Relationship Between Stakeholder Management Models and Firm Financial Performance , 1999 .

[21]  J. McGuire,et al.  Corporate Social Responsibility and Firm Financial Performance , 1988 .

[22]  Petra Christmann.  Effects of “Best Practices” of Environmental Management on Cost Advantage: The Role of Complementary Assets , 2000 .

[23]  M. Canela,et al.  Over the Long-Run? Short-Run Impact and Long-Run Consequences of Stakeholder Management , 2011 .

[24]  M. Nakano,et al.  Relationship between environmental performance and financial performance: an empirical analysis of japanese corporations , 2007 .

[25]  Jaepil Choi,et al.  Stakeholder relations and the persistence of corporate financial performance , 2009 .

[26]  C. Fombrun,et al.  What's in a Name? Reputation Building and Corporate Strategy , 1990 .

[27]  Stuart L. Hart,et al.  Do Corporate Global Environmental Standards Create or Destroy Market Value , 2000 .

[28]  Krishna Udayasankar,et al.  Corporate Social Responsibility and Firm Size , 2008 .

[29]  S. Ross.  The Economic Theory of Agency: The Principal's Problem , 1973 .

[30]  A. Hillman,et al.  Shareholder value, stakeholder management, and social issues: what's the bottom line? , 2001 .

[31]  Charles J. Fombrun,et al.  Reputation: Realizing Value from the Corporate Image , 1996 .

[32]  Clyde Eiríkur Hull,et al.  How Corporate Social Responsibility Engagement Strategy Moderates the CSR–Financial Performance Relationship , 2012 .

[33]  D. Z. Phillips..  Does It Pay To Be Good , 1992 .

[34]  Carmelo Reverte.  Determinants of Corporate Social Responsibility Disclosure Ratings by Spanish Listed Firms , 2009 .

[35]  John Peloza,et al.  Using Corporate Social Responsibility as Insurance for Financial Performance , 2006 .

[36]  Abagail McWilliams,et al.  Corporate Social Responsibility: a Theory of the Firm Perspective , 2001 .

[37]  M. Victoria López,et al.  Sustainable Development and Corporate Performance: A Study Based on the Dow Jones Sustainability Index , 2007 .

[38]  G. Dowling,et al.  Corporate reputation and sustained superior financial performance , 2002 .

[39]  R. Roberts,et al.  Determinants of corporate social responsibility disclosure: An application of stakeholder theory , 1992 .

[40]  A. Kraus,et al.  The Effect of Green Investment on Corporate Behavior , 2001, Journal of Financial and Quantitative Analysis.

[41]  Barbara R. Bartkus,et al.  Having, Giving, and Getting: Slack Resources, Corporate Philanthropy, and Firm Financial Performance , 2004 .

[42]  Oliver Falck,et al.  Corporate social responsibility: Doing well by doing good , 2007 .

[43]  Simone de Colle,et al.  Stakeholder Theory: The State of the Art , 2010 .

[44]  M. C. Jensen,et al.  Harvard Business School; SSRN; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit , 1976 .

[45]  M. Russo,et al.  A Resource-Based Perspective On Corporate Environmental Performance And Profitability , 1997 .

[46]  L. Preston,et al.  The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications , 1995 .

[47]  R. Buchholz,et al.  Research Notes. CORPORATE SOCIAL RESPONSIBILITY AND STOCK MARKET PERFORMANCE. , 1978 .

[48]  Samuel B. Graves,et al.  Institutional Owners and Corporate Social Performance , 1994 .

[49]  Matthias Holweg,et al.  Exploring Scale: The Advantages of Thinking Small , 2003 .

[50]  Dolors Setó Pàmies,et al.  La naturaleza de la relación entre la responsabilidad social de la empresa (RSE) y el resultado financiero , 2011 .

[51]  S. Brammer,et al.  Does it pay to be different? An analysis of the relationship between corporate social and financial performance , 2008 .

[52]  Geoff Moore,et al.  Corporate Social and Financial Performance: An Investigation in the U.K. Supermarket Industry , 2001 .

[53]  M. Porter,et al.  Strategy and society: the link between competitive advantage and corporate social responsibility. , 2006, Harvard business review.

[54]  I. García‐Sánchez,et al.  Effects of Activist Shareholding on Corporate Social Responsibility Reporting Practices: An Empirical Study in Spain , 2012, Cuadernos de difusión.

[55]  P. Bansal,et al.  Social responsibility in new ventures: profiting from a long‐term orientation , 2012 .

[56]  Shameek Konar,et al.  Does the Market Value Environmental Performance? , 2001, Review of Economics and Statistics.

[57]  Reginald A. Litz,et al.  Stakeholder Theory: Reviewing a Theory That Moves Us , 2008 .

[58]  Edward Nelling,et al.  Corporate social responsibility and financial performance: the “virtuous circle” revisited , 2009 .

[59]  Kamalesh Kumar,et al.  Descriptive, instrumental and strategic approaches to corporate social responsibility: Do they drive the financial performance of companies differently? , 2013 .

[60]  J. Harrison,et al.  Managing and partnering with external stakeholders , 1996 .

[61]  V. Crisóstomo,et al.  Corporate social responsibility, firm value and financial performance in Brazil , 2011 .

[62]  Lois S. Mahoney,et al.  Corporate social performance, financial performance and institutional ownership in Canadian firms , 2007 .

[63]  Chris Brooks,et al.  Corporate Social Performance and Stock Returns: UK Evidence from Disaggregate Measures , 2005 .

[64]  R. Buchholz,et al.  Corporate Social Responsibility and Stock Market Performance , 1978 .

[65]  Tyrone T. Lin,et al.  Application of the modified Tobin’s q to an uncertain energy-saving project with the real options concept , 2011 .

[66]  Gordon E. Greenley,et al.  Strategic planning differences among different multiple stakeholder orientation profiles , 2004 .

[67]  Richard A. Johnson,et al.  The Effects of Corporate Governance and Institutional Ownership Types on Corporate Social Performance , 1999 .

[68]  J. Quirós,et al.  Performance bursátil de las empresas socialmente responsables , 2012 .

[69]  John D. Benjamin,et al.  Corporate Social Performance and Firm Risk: A Meta-Analytic Review , 2001 .

[70]  Yuhei Inoue,et al.  Effects of different dimensions of corporate social responsibility on corporate financial performance in tourism-related industries , 2011 .

[71]  Gregory A. Bigley,et al.  Ethical Theory and Stakeholder-Related Decisions: The Role of Stakeholder Culture , 2007 .

[72]  Oliver Falck,et al.  Corporate social responsibility: Doing well by doing good , 2007 .

[73]  R. Klassen,et al.  The Impact of Environmental Technologies on Manufacturing Performance , 1999 .

[74]  Diego Prior Jiménez,et al.  Are Socially Responsible Managers Really Ethical? Exploring the Relationship between Earnings Management and Corporate Social Responsibility , 2008 .

[75]  T. Gössling,et al.  The Worth of Values – A Literature Review on the Relation Between Corporate Social and Financial Performance , 2008 .

[76]  Kamalesh Kumar,et al.  Examining the Link between Strategic Corporate Social Responsibility and Company Performance: An Analysis of the Best Corporate Citizens , 2013 .

[77]  Eduardo Ortas,et al.  The Environmental, Social, Governance, and Financial Performance Effects on Companies that Adopt the United Nations Global Compact , 2015 .

[78]  T. Jones,et al.  Stakeholder‐Agency Theory , 1992 .

[79]  Ronald W. Clement,et al.  The lessons from stakeholder theory for U.S. business leaders , 2005 .