The Relationship between Corporate Social Responsibility and Firm Performance

Abstract

This paper examines Corporate Social Responsibility (CSR) and its relationship with firm performance. We use three accounting-based firm performance measures, return on assets (ROA), return on equity (ROE), and return on sales (ROS), and three market-based firm performance measures, earnings per share (EPS), market-to-book value (MBV), and price to earnings ratio (PE). Our sample contains Standard and Poor’s COMPUSTAT and MSCI ESG KLD STATS data from 1991 to 2013. Our study consists of correlation analysis in which we examine the correlations between our variables. Then, we conduct two sets of regressions. The first set of regressions focus on CSR ratings and their relationship with our six firm performance measures, and the second set of regressions focus on the presence of socially responsible activities within firms and their relationship with our six firm performance measures. Lastly, we investigate whether there is a causal relationship between CSR ratings and firm performance through causality testing. The result of this study concludes that CSR has a negative relationship with ROS and EPS, but it does not have a significant influence on firm performance.