Abstract
Prior studies on the relationship between corporate social performance and corporate financial performance areinconclusive. In the paper, we review 63 studies, and find (1) there are three methodology, which are empiricalanalysis, normative analysis and meta-analysis; (2) control variables, such as industry, size and risk, have beenplaying the important role in these studies; (3) different researchers discuss different stakeholder groups; (4)measures of both CSP and CFP are the complex phenomenon, and still uncertain. We assert that the variations ofmethodology, industries, control variables, stakeholder groups, and measures of both CSP and CFP should beresponsible for the vexing relationship.
Highlights
Investigating the correlation between corporate social performance and corporate financial performance has been a lively confrontation since Milton Friedman’s (1962, 1970) challenge that “a corporation’s social responsibility is to make a profit.” Friedman’s views added fire and intellectual challenge to the debate and triggered additional interest in either proving or disproving the relationship between social performance and financial performance (Griffin, Mahon, 1997)
We review 63 studies, and find (1) there are three methodology, which are empirical analysis, normative analysis and meta-analysis; (2) control variables, such as industry, size and risk, have been playing the important role in these studies; (3) different researchers discuss different stakeholder groups; (4) measures of both Corporate Social Performance (CSP) and Corporate Financial Performance (CFP) are the complex phenomenon, and still uncertain
We assert that the variations of methodology, industries, control variables, stakeholder groups, and measures of both CSP and CFP should be responsible for the vexing relationship
Summary
Investigating the correlation between corporate social performance and corporate financial performance has been a lively confrontation since Milton Friedman’s (1962, 1970) challenge that “a corporation’s social responsibility is to make a profit.” Friedman’s views added fire and intellectual challenge to the debate and triggered additional interest in either proving or disproving the relationship between social performance and financial performance (Griffin, Mahon, 1997). Many researchers have explored the empirical relationship between CSP and CFP, no definitive consensus exists (Griffin & Mahon, 1997). Margolis and Walsh (2001) have noted concern over the methodology used in many of the studies Despite these researches, the linkages between CSP and financial performance are still far from clear (Ullman, 1985). Reasons include: (1) lack of a theoretical foundation, (2) lack of a comprehensive systematic measure of CSP, (3) lack of rigorous methodology, (4) sample size and composition limitations, and (5) mismatch between social and financial variables. Brammer and Millington (2008) expressed that the failure to reach a consensus on relation of CSP and CFP arises for a number of reasons as follows: (1) the conceptual determinants of CSP, and the theoretical expectations of the CSP-CFP relationship; (2) severe difficulties encountered in measuring CSP; (3) the lack of consensus in the literature reflects the very broad rang of measures of CFP employed in existing studies.
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