Exploring the determinants of corporate social performance: does firm size matter?

This paper aims to examine the publication metrics of literature related to the influential aspects of ESG (environmental, social, and governance), SRI (socially responsible investing), ethical, and impact investing on the portfolio and financial performance literature. It also seeks to identify major patterns and core themes in this topic and draw lessons from the past literature for future directions. Data from the SCOPUS database were used in this study. The ‘biblioshiny’ R package, also known as ‘bibliometrix 3.0’, was employed to conduct bibliometric analysis, utilising mapping and clustering techniques on 260 articles, in order to distil the comprehensive knowledge and identify emerging trends in ESG, SRI, ethical, and impact investing. The thematic map classified the ESG, SRI, ethical, impact investing and performance relationship themes into four categories of themes: niche themes (SRI, engagement and ESG), motor themes (corporate financial performance, corporate social performance, ESG, ESG factors, sustainability, performance, integrated reporting, gender diversity, and board size), emerging or declining themes (social responsibility, environmental performance, socially responsible investment, ethical investment, and SRI), and basic or transversal themes (financial performance, corporate social performance, ESG performance, environmental, social, and governance). Socially responsible investing, engagement, and ESG imply a position between niche themes and a highly developed topic/emerging or a decreasing theme, while the impact of COVID-19 on sustainability and financial performance implies a position between a highly developed topic/emerging or decreasing theme and a basic theme. The findings contribute to the enhanced understanding of ESG, SRI, ethical, impact investing and performance, which are crucial for an efficient capital market in promoting sustainability and sustainable development. The study offers vital practical implications and future research directions.

Prior research on the association between corporate social performance (CSP) and corporate financial performance (CFP) includes conflicting perspectives and inconclusive findings as to whether or not CSP has a positive, negative, or neutral association with CFP. While Wang et al. (2015) meta-analysis confirms the relationship between CSP and CFP to be significant and positive, in some contexts CSP and CFP associate negatively; CSP may need to receive “good management” support to yield positive financial outcomes [Luo and Bhattacharya (J Mark 73:198–213, 2009)]. The study here tests and supports the perspective that “good management” occurs in configurations (i.e., business models) with high CSP to indicate high CFP. A configurational theoretical stance implies that recipes of bad management with high or low CSP are likely to associate with low CFP. Configurational analysis supports this theoretical perspective. Building from complexity theory, a configurational analysis includes the propositions that complex multiple recipes lead to the same outcome (equifinality tenet) whereby variables (ingredients) found to associate causally in one configuration may be absent in another recipe or even inversely related in a third recipe associated with this same outcome. The present study employs a mixed methods research design (using surveys of senior executives, independent CSP firm assessments using ESG factors (environment, social (or human rights), and governance), and analysis of corporate annual reports of 82 mostly highly-global Swedish firms). The study overcomes the mismatch between case-level theory proposals and variable-based data analyses that is widespread in the relevant literature. The study’s findings support the core tenets of complexity theory.

A decade's debate on the nexus between corporate social and corporate financial performance: a critical review of empirical studies 2002–2011

In this research, we shed new light on the empirical link between corporate social performance (CSP) and corporate financial performance (CFP) via the application of empirical models and methods new to the CSP–CFP literature. Applying advanced financial models to a uniquely constructed panel dataset, we demonstrate that a significant overall CSP–CFP relationship exists and that this relationship is, in part, conditioned on firms’ industry-specific context. To accommodate the estimation of time-invariant industry and industry-interaction effects, we estimate linear mixed models in our test of the CSP–CFP relationship. Our results show both a significant overall CSP effect as well as significant industry effects between CSP and CFP. In conflict with expectations, the unweighted average effect of CSP on CFP is negative. Our industry analysis, however, shows that in over 17% of the industries in our sample, the effect of CSP on CFP for socially responsible firms is positive. We also examine the multidimensional nature of the CSP construct in an industry context by exploring the CSP dimension–industry nexus and identify dimensions of social performance that are associated with either better or worse financial performance. Our results confirm the existence of disparate CSP dimension–industry effects on CFP, thus our results provide important and actionable information to decision makers considering whether and how to commit corporate resources to social performance.

PurposeThe purpose of the paper is to examine empirically Granger causality relationships between corporate social performance (CSP) and corporate financial performance (CFP) in four different industries.Design/methodology/approachThe paper uses the Granger causality test to analyse the causality relationships between CSP and CFP in clothing, energy, food and forest industries in the USA. The panel data used combined CSP and CFP measures over the years 1991-2009. CSP strengths and concerns are handled as distinct constructs.FindingsThere is some evidence of bidirectional causality between CSP and CFP in the clothing, energy and forest industries; but in the food industry, CSP appears not to Granger-cause CFP. The results encourage accounting for the industry in empirical analyses, as well as the use of more than one measure for CFP in the analyses.Originality/valueThe direction of causality between CSP and CFP has been specifically addressed in only a few studies. Because the causality relationship may, in addition, be concealed when multi-industry data are used, this paper contributes to the literature by examining the Granger causality between CSP and CFP in four different industry contexts using two different measures of CFP.

PurposeWith the Green Deal and Sustainable Finance Taxonomy, the European Union is driving forward its ambition for a modern, resource-efficient and competitive economy. For this reason, this paper contributes to the ongoing discussion by examining how overall corporate social performance (CSP) and the respective environmental, social and governance (ESG) pillar performance affects corporate financial performance (CFP). In addition, this study aims to present novel insights by testing a theoretically derived CSP over-investment theory empirically for the German market.Design/methodology/approachThe final sample includes firms listed on the German Prime Standard (DAX30, MDAX and TecDAX) from 2015 to 2019. The study includes a correlation and regression analysis using fixed effects on 363 firm-year observations to investigate the CSP-CFP relationship. This paper applies accounting and market-based CFP measures and uses Thomson Reuters (TR) ESG scores to measure CSP.FindingsOverall CSP, social pillar and governance pillar performance improve CFP for firms listed on the German Prime Standard. However, the study provides evidence for a value-destroying effect of CSP over-investment in the social pillar.Research limitations/implicationsThe implications of the study are ambiguous. First, firms can improve CFP when doing good, i.e. increase CSP. Second, however, CSP is a concept of decreasing marginal benefits. Consequently, managers can respond to increasing pressure from investors to be “sustainable” with the argument of CSP over-investment. Policymakers must consider materiality as a potential explanation for the over-investment phenomena when framing sustainable development programs, i.e. the EU Green Deal and regulations such as the Directive 2014/95/EU and the Regulation EU 2020/852. Moreover, the study sensitizes society that sustainability efforts do not exclusively affect CFP positively.Originality/valueThe paper contributes to CSP literature by revisiting the CSP-CFP relationship and debuting a CSP over-investment hypothesis on the German market. The results are highly relevant for practitioners, policymakers and society, as the study provides an empirical framework to evaluate CSP properly and reveals the importance of materiality in stakeholder management.

<p>This paper examines the relationship between Corporate Social Performance (CSP) and Corporate Financial Performance (CFP) of 286 Taiwan-listed firms during the period 2012- 2017. I use Bloomberg’s Environmental, Social and Governance (ESG) Disclosure score to proxy CSP. The CFP is measured by two accounting-based measures, namely, Return on Assets (ROA), Return on Equity (ROE), and a market-based measure as annual stock returns (Stock Returns). Results suggest that CSP influences on ROE and ROA in an inverted U-shaped pattern, supporting that the strategic CSR motive satisfies the profit maximization assumption; better current ROE (Stock Returns) will lead to subsequent CSP improvement in a positive quadratic (inverted U-shape) pattern, thus supporting the slack resources theory. To sum up, there is a quadratic bidirectional relationship between CSP and ROE of Taiwan-listed firms. </p> <p> Further, disentangling Bloomberg’s ESG Disclosure score to proxy environmental, social, and governance performance, which shows that the direct effect of environmental (social) performance on accounting-based measures of CFP is increasing (decreasing) return to scale. Hence, the Environmental Corporate Social Responsibility (ECSR) investment by TWSE listed firms benefits CFP should be encouraged in cases where the indirect influence of environmental performance on ROE and ROA through governance performance is manageable, supporting Natural-resource-based View of the firm (NRBV).</p> <p> </p>

This study explores the relationship between corporate social performance (CSP) and corporate financial performance (CFP) within the context of a specific component of CSP: corporate charitable giving. A model of the determinants of the extent of corporate charitable giving is estimated and used as the basis of a classification that groups firms according to the difference between their actual and their predicted intensity of gift giving. The financial performance attributes of the classification are explored. We found that firms with both unusually high and low CSP have higher financial performance than other firms, with unusually poor social performers doing best in the short run and unusually good social performers doing best over longer time horizons. Copyright © 2008 John Wiley & Sons, Ltd.

We quantify to what extent the quality of credit rating predictions improves through integrating measures of corporate social performance (CSP) in an established credit risk model. Our analysis provides comprehensive evidence of the comparative informational advantage of considering CSP in predicting credit ratings of North American and European firms. In the North American sample, both environmental and social performance have an explanatory impact. The out-of-sample prediction quality improves by more than 0.8%. By contrast, only social performance increases the explanatory power in the European sample, while environmental performance does not. Overall, we show that CSP is a relevant variable for predicting credit ratings. In general, our findings support the risk mitigation view of CSP, indicating that firms with high CSP are less risky and thus have better credit ratings. However, the quality of the relationship depends on the socio-economical and cultural environment as well, as can be seen from the differing results in North America and Europa.

PurposeThe purpose of this study is to investigate whether the corporate environmental, social and governance (ESG) performance of companies is influenced by the barriers and opportunities created by three factors characterising a country’s governance landscape: democracy, political stability and regulatory quality. Additionally, this study separately explains the influence of the three country governance factors on the ESG performance of companies and how they are affected by the profitability of the company.Design/methodology/approachFixed effects multiple linear regression is performed on 6,035 firm-year observations drawn from 27 countries relating to 1,207 unique constituents of the S&P Global 1200 index for a five-year period from 2015 to 2019. Clustered standard errors robust to heteroscedasticity and serial correlation are estimated for a specification that includes Refinitiv ESG scores as the dependent variable, selected Worldwide Governance Indicators as the independent variables and several country- and firm-level controls.FindingsThe study finds that companies’ ESG performance is higher in countries with a lower level of democracy and political stability, and corporate governance performance is higher in countries with higher regulatory quality. A component-level analysis finds significant variation in the results across the different ESG pillars. Firm profitability moderates the relationship between country-level governance factors and companies’ ESG performance.Practical implicationsThe study reveals that national governments can prompt companies to enhance their governance performance, invariably leading to greater engagement in sustainability by improving their regulatory environment and enforcement mechanisms. Thus, the implementation of regulations targeting corporate environmental and social performance is not always needed to prompt better corporate ESG performance.Social implicationsThis study shows that internationalised companies proactively work towards achieving sustainability in countries where the country governance landscape is ineffective and inadequate to enable it.Originality/valueThis study addresses the association between country-level governance and firm-level ESG performance, in contrast to firm-level corporate social responsibility disclosure that has been the focus of prior research. As disclosures can be symbolic and may not reflect actual ESG performance, the results of prior studies examining the relationship between country-level governance performance and corporate social responsibility disclosure is inappropriate to explain the factors affecting the ESG performance of companies.

PurposeThis paper fits in a research field dealing with the impact of Corporate Ethics Assessment on Financial Performance. The authors argue how environmental, social and governance (ESG) paradigm, meant to measure corporate social performance by rating issuance, can impact on abnormal returns of Italian firms listed on Financial Times Stock Exchange Milano Indice di Borsa (FTSE MIB) Index, developing a panel data analysis which runs from 2007 to 2015.Design/methodology/approachThis study aims at exploring whether socially responsible investors outperform an excess market return on Italian Stock Exchange because of their investment behavior, testing statistically the relationship between the yearly ESG assessment issued by Standard Ethics Agency on FTSE MIB’s companies and their abnormal returns. To verify the impact of an ESG Rating on a company’s abnormal return, the authors developed a panel data analysis through a Fixed Effects Model. They measured abnormal returns via Fama–French approach, running a yearly Jensen’s Performance Index for each company under investigation.FindingsThe empirical results denote in Italy both a growing interest to corporate social responsibility (CSR) and sustainability by managers over the past decade, as well as an improving quality in ESG assessments because of a reliable corporate disclosure. Thus, despite investors have been applying ESG criteria in their stock – picking operations, the authors found a not positive and statistically significant impact in terms of market premium, when they have been undertaking a socially responsible investment (SRI).Practical implicationsThe findings described above show that ethics is not yet a reliable fundraising tool for Italian-listed companies, despite SRIs having a positive growth rate over past decade. Investors seem to be not pricing CSR on Stock Exchange Market; therefore, listed companies cannot be rewarded with a premium price because of their highly stakeholder oriented behavior.Originality/valueThis paper explores, for the first time in Italy, when market extra-returns (if any) are related to corporate social performance and how managers leverage ethics to build capital added value.

Modeling firm heterogeneity in corporate social performance and financial performance

Recently, the corporate social performance (CSP) is not less important than the corporate financial performance (CFP). Debate still exists about the nature of the relationship between the CSP and CFP, whether it is a positive, negative or a neutral correlation. The objective of this study is to explore the relationship between corporate social responsibility (CSR) reports and CFP. The study uses the accounting-based and market-based quantitative measures to quantify the financial performance of seven organizations listed on the Egyptian Stock Exchange in 2007-2014. Then uses the information retrieval technologies to quantify the contribution of each of the three dimensions of the corporate social responsibility report (environmental, social and economic). Finally, the correlation between these two sets of variables is viewed together in a model to detect the correlations between them. This model is applied on seven firms that generate social responsibility reports. The results show a positive correlation between the Earnings per share (market-based measure) and the economical dimension in the CSR report. On the other hand, total assets and property, plant and equipment (accounting-based measure) are positively correlated to the environmental and social dimensions of the CSR reports. While there is not any significant relationship between ROA, ROE, Operating income and corporate social responsibility. This study contributes to the literature by providing more clarification of the relationship between CFP and the isolated CSR activities in a developing country.

Three Models of Corporate Social Responsibility: Interrelationships between Theory, Research, and Practice

Drawing on agency theory concerning corporate social responsibility (CSR) activities, this study investigates the relationship between corporate social performance (CSP) and corporate financial performance (CFP) at each stage of the firm life cycle (FLC). It also verifies how this relationship is affected by large business groups. This study shows a significant positive relationship between CSP and CFP at the growth and mature stages. This relationship is more pronounced in mature firms than in growth firms. This result indicates that CSR activities increase CFP in the long-term perspective by mitigating the agency problem. Furthermore, at the growth and mature stages, the positive relationship between CSP and CFP changed to be negative in firms of large business groups. This result indicates that the degree to which CSP leads to an increase in CFP is more weakened in large business groups where the agency problem between controlling and other shareholders can be more severe. Finally, this study contributes to prior research by presenting consistent results on the relationship between CSP and CFP using the FLC and large business groups.