Managing CSR Inside China

Abstract

In this chapter, the authors attempt to investigate the possible connection between corporate social responsibility (CSR) performance and corporate financial performance in China. In the process, we utilize data on corporate social responsibility performance (proxied using CSR report ratings) and corporate financial performance (proxied using ROA&ROE and Tobin’s q). The overarching hypothesis may be phrased simply as: Is the company rewarded by its CSR activities from profitability perspective? The results suggest that there is significant link that indicates positive correlation between corporate social responsibility performance and corporate financial performance both in short term and long term. Most intriguingly is our finding of sharp contrast between the CSR mandatory corporations and voluntary corporations. The financial performances of corporations that are mandated (under obligation) to report on CSR activities are significantly higher than those of firms that volunteered (but not required by policy) such information. Good corporate social responsibility activities have impacts on both short- and long-term financial performances of the China firms. Corporations may achieve twin goals of earning profits and serving society. Industry executives and managers should embed CSR as part of overall corporate strategy as this will lead to improving short-term profitability and enhancing long-term competitive advantage. On the basis of our empirical finding of CSR activities to impact on profitability, we suggest a new body of thinking to be developed: there are strong financial dimensions to being socially responsible. Both investors and debt providers of companies ought to keenly emphasize good CSR practices especially in enhanced, quality reporting. Practically, it means that from a financial, fund-raising perspective, it pays for top management to emphasize a higher CSR performance.