Abstract
This paper investigates the link between long-run corporate financial performance, corporate social responsibility, and customer satisfaction. Using annual financial data, customer satisfaction index, and the Dow Jones Sustainability Index, the paper seeks to establish whether it pays organizations to use ethical methods in striving to be sustainable. Data used for this research cover the period 2001 to 2008. We used dynamic panel data linear regression models to analyze the effect of customer satisfaction and social responsibility on short-run and long-run financial performance. It was found that it may benefit organizations to use ethical methods in pursuing sustainability. since organizations who invest time, money, and effort in corporate social responsibility activities, their good reputations and satisfied customers yield long-term cash flow growth.Keywords: corporate customer satisfaction, Corporate Social Responsibility, corporate financial performanceDisciplinesL business studies, international studies, ethics, finance studies
Highlights
Corporate social responsibility (CSR) is enjoying renewed interest from business managers and executives, marketers, and public relations practitioners, who seem to recognize the value of investing time, money, and effort in CSR while at the same time seeming unable to quantify the contribution of CSR to the organizational bottom line. Porter & Kramer (2006) make the points that CSR is a fragmented practice, and seldom coordinated with other organizational functions
If we look at regression 2 and 3, the empirical result shows that the high investment in CSR activities two periods ahead is positively significantly correlated with corporate current return on equity (ROEt) at 5% significant level, current, 1 period prior, and 2 period prior CSR investment is significantly negatively correlated with current market share of the firm at 1%, 10%, and 5% significant level, respectively
By reviewing the American Customer Satisfaction Index (ACSI) listed firms only, our results show that investments in CSR activities have a negative impact on firm’s short-run and long-run market share, investments in CSR activities yield a positive impact on firm’s long-run return on equity
Summary
Corporate social responsibility (CSR) is enjoying renewed interest from business managers and executives, marketers, and public relations practitioners, who seem to recognize the value of investing time, money, and effort in CSR while at the same time seeming unable to quantify the contribution of CSR to the organizational bottom line. Porter & Kramer (2006) make the points that CSR is a fragmented practice, and seldom coordinated with other organizational functions. In keeping with stakeholder management theories, the organization engages in corporate social responsibility programs to illustrate its commitment to the interests of all stakeholders These goals (profit maximization, customer satisfaction, and social responsibility) could become mutually exclusive, and one practiced to the detriment of another. This paper examines, for the first time, the link between corporate financial performance (CFP), corporate social responsibility, and customer satisfaction in order to answer our research question. We hypothesize as follows: Organizations that have satisfied customers, a strong financial balance sheet and which achieve and maintain socially responsible growth, may achieve long-term sustainability and will be able to avoid future economic hardship, loss of reputation, and other negative effects
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