Abstract
This study investigates whether corporate social responsibility (CSR) affects the financial performance of the United States (US) companies. In particular, the impact of CSR on financial performance is investigated in terms of involvement in socially responsible initiatives instead of outcome. The Environmental, Social and Governance disclosure score as calculated by Bloomberg is used as a proxy for corporate involvement in socially responsible initiatives. Fixed effects regression is employed to estimate the relationship between the extent of corporate social disclosure (CSD) and financial performance using the data of listed companies on the Standard & Poor’s 500 during the period 2009-2013. The results suggest that the involvement in socially responsible initiatives has a significantly positive effect on financial performance. In addition, the control variables, such as total compensation to directors, CEO duality and women presence on board are statistically significant to financial performance. It is important to incorporate a longer period in order to validate the positive relationship between CSR and financial performance, whilst the sample is focused on large in size US companies. This study chose to approach the topic from a different angle in order to provide an alternate perspective on this issue taking into account the involvement of socially responsible initiatives via CSD. Keywords: corporate social responsibility, disclosure, financial performance. JEL Classification: M140, M410, Q00
Highlights
The effect of corporate social responsibility (CSR) on financial performance is becoming increasingly important to a broad range of corporate stakeholders, such as investors and strategic managers
As the concepts of CSR and CSR/non-financial disclosure have been emerged together (Perrini, 2005), this study chose to approach this topic from a different angle in order to provide an alternative perspective on this issue taking into account the perceived CSR performance via corporate social disclosure (CSD)
A number of theories and methodologies have been employed to study the impact of CSR on financial performance
Summary
The effect of corporate social responsibility (CSR) on financial performance is becoming increasingly important to a broad range of corporate stakeholders, such as investors and strategic managers. As there is confusion around the concept of CSR for a large part of investors and the investors’ demand for CSD is clearly rising, this study intends to investigate whether a third party rating of CSD affects the financial performance of the US companies. A number of US Social Responsible Investments (SRI) indices, such as Dow Jones Sustainability Index and KLD index incorporate CSR criteria including reporting ones in order to assess the company’s social performance. Dow Jones Sustainability Index is a well known index that incorporates companies that satisfy social expectations, S&P 500 Environmental & Socially Responsible Index was created to assess the performance of listed companies in S&P 500 that comply environmental and social sustainability criteria and Global Reporting Initiative guidelines seem to affect a large number of US companies (Global Reporting Initiative, 2016). Bloomberg calculates the extent of three sub-categories of CSR disclosure, namely, Environmental, Social and Governance, composing the total Environmental, Social and Governance disclosure (ESGD) index
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