CSR, Management Forecast Quality, and Financial Return: Function of CSR Fit

Abstract

Prior studies have recognized the presence of corporate social responsibility (CSR) fit and the benefits of achieving a better fit. However, these studies have largely overlooked the firm-specific factors that can explain why some firms achieve a better CSR fit while the others cannot in the first place. To fill this gap, we examine if environmental scanning ability moderates the relationship between CSR and corporate financial performance (CFP) by allowing firms to identify and conduct better-fitting CSR practices. In the analysis, we use management forecast quality (MFQ) as an observable practice that reflects such scanning ability of firms. We find that the moderating effect is dependent on two types of CSR. As for instrumental CSR, firms with high MFQ use their scanning ability to satisfy their stakeholder demands more effectively and, in turn, derive more economic values from their CSR investment. On the other hand, regarding moral CSR, firms with high MFQ similarly achieve a better CSR fit, but this creates more social values for the society while imposing more extra costs on the firms.