Abstract
This paper extends empirical research that examines the Corporate Social Performance (CSP)-Corporate Financial Performance (CFP) relationship. Previous studies display mixed findings with no unified evidence regarding the CSP-CFP relationship’s direction or impact. We introduce the concepts of strategic CSP and ad-hoc CSP, which we collectively term “CSP maturity.” Using panel data on 86 large European banks and insurance companies, we investigate whether there is a relationship between a company’s financial performance (CFP) and CSP maturity and, if a relationship is present, its direction and causality. Correlation analysis suggests CSP maturity and CFP are negatively related to one another; independent sample t-tests show statistically significant different means of ROA and ROS for companies engaged in strategic and ad-hoc CSP. Ad-hoc companies were on average associated with better ROA and ROS. No significant difference was present for ROE. In contrast, regression analysis did not show a relationship between CSP maturity and CFP, suggesting CSP maturity does not have an impact on CFP nor can CFP be used to explain CSP maturity. The results of this study may be limited in their generalizations because the data includes 2007-2008; a period of time the global economy experienced a major recession.
Highlights
In 2007 Danone donated $18.9 million Euros to children and sports associations, research institutes, hospitals and charity organizations (Note 1)
Using panel data on 86 large European banks and insurance companies, we investigate whether there is a relationship between a company’s financial performance (CFP) and Corporate Social Performance (CSP) maturity and, if a relationship is present, its direction and causality
The data contains 344 observations for Corporate Financial Performance (CFP) and control variables and 258 observations for CSP variables; the difference in observations is because financial data is collected for 2005-2008, while CSP data is collected for 2005-2007
Summary
In 2007 Danone donated $18.9 million Euros (an increase of $2.2 million Euros in 2006) to children and sports associations, research institutes, hospitals and charity organizations (Note 1). By 2007 there were more than 160 empirical articles and 13 meta-analyses (Margolis, Elfenbein, & Walsh, 2007) These studies examine the strength, direction and causality of the CSP-CFP relationship across various industries using differing methodologies, levels of control, and definitions/measures of social and financial performance. Some researchers consider engagement in a single field, like donations or environmental actions, as being CSP-engaged, while others require the firm participate in a wide range of complex activities. These differences raise questions of data reliability and comparability across studies. Much of the empirical research has been conducted on U.S companies; our study provides another unique perspective in that it focuses on European firms and may provide insights into cultural biases not previously found
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