Corporate Financial Performance Link Research Articles

Current status and future perspective of the link of corporate social responsibility–corporate financial performance in the tourism and hospitality industry

The CSR literature has paid close attention to the effect of CSR on corporate financial performance (CFP), well-known as the CSR–CFP link. Based on the instrumental perspective perceiving CSR as an instrument for enhancing a firm’s performance, people began to see CSR as not only a good deed that benefits society but also a strategy that can benefit the corporation. To empirically test this instrumental perspective, many researchers have investigated whether a firm’s engagement in CSR activities indeed leads to improving the firm’s performance. Through such investigations, the CSR literature has acknowledged that there are still many issues to explore in the CSR–CFP link. The current study, therefore, is to investigate what has been done in the TH literature regarding the CSR–CFP link in the 2000s and further to provide future directions for the CSR–CFP link.

Does structural capital count in human capital-corporate financial performance relationship? Evidence from deposit money banks in Nigeria

PurposeThe purpose of this paper is to explore human capital and corporate financial performance link from the perspective of human capital theory, resources-based view and balanced score card approach, and the mediating role of structural capital in this relationship.Design/methodology/approachOverall, a data set was drawn from five-year annual reports of deposit money banks (DMBs) in Nigeria. Additionally, the bootstrap procedure was performed to test the mediating role of structural capital.FindingsSpecifically, the paper results indicate that whereas human capital has significant positive effect on corporate financial performance and structural capital, structural capital has significant positive effect on corporate financial performance. Additionally, the study finds structural capital to mediate the effect of human capital on organizational financial performance.Research limitations/implicationsThis paper focused on 12 DMBs in Nigeria and their five year annual reports. Accordingly, future studies in this area should increase the number of banks and years, and include firms operating in insurance, manufacturing, telecommunication and oil and gas industries to permit comparability of results and broader basis for generalizability. Moreover, the study results provide insights that would serve as robust empirical basis for policy makers to insist on enhancement of the value of human and structural capital variables.Practical implicationsThe managers of DMBs should commit to development of their employees through improvement in their training and health programs, among others. Also, they should ensure continuous improvement of their structural capital to enable the investments in their employee to translate to enhanced corporate financial performance.Originality/valueTo the best of the author’s knowledge, this is the first study to explore the mediation effect of structural capital on the human capital-corporate financial performance link using evidence from DMBs in Nigeria and, thus, extends and deepens extant literature on human capital-organizational performance nexus.

Doing well by doing good: How corporate environmental responsibility influences corporate financial performance

AbstractThe natural resource‐based view suggests a relationship between corporate environmental responsibility (CER) and corporate financial performance (CFP), because intangible assets accrued by a firm constitute competitive advantages. However, the role of corporate reputation as a valuable intangible asset in the CER–CFP link has yet to be examined. We fill this gap by examining the effect of a firm's reputation in terms of prominence and favorability in interactively mediating the CER–CFP link. Using a sample of 10,995 firm‐year observations in China, we find that CER enhances a firm's prominence and favorability, through which CER indirectly improves CFP. Additionally, the results of moderated mediation analysis indicate that the indirect effect of CER on CFP via improving prominence (favorability) is more positive and significant in high levels of favorability (prominence) than in low levels.

Untangling the relationship between Corporate Environmental Performance and Corporate Financial Performance: The double-edged moderating effects of environmental uncertainty

Is corporate environmental performance (CEP) a benefit or a cost for corporate financial performance (CFP)? Some studies have concluded that CEP nurtures good stakeholder relationships and facilitates acquisition of critical resources controlled by those stakeholders, thereby suggesting a positive CEP–CFP link. By contrast, other researchers have taken a negative stance by suggesting that commitment to improve CEP diverts limited resources from value-creating activities and damages competitive advantage. This study reconciles the longstanding debate about the CEP–CFP link by integrating and extending existing perspectives. We suggest that the CEP–CFP link can be captured by an inverse U-shape, which is steeper and of a lower plateau in higher levels of environmental uncertainty characterized by high dynamism, low munificence, and high complexity. We find strong support for these arguments using a panel dataset of 8364 firm–year observations from 1455 industrial firms. These findings encourage managers to conduct a benefit–cost analysis for determining the optimal level of commitment to CEP. Caution should be paid to the double-edged effect of high levels of environmental uncertainty, which enables CEP to bring great marginal increase (decrease) of financial performance at the left (right) side of the curve.

Environmental, social and governance (ESG) activity and firm performance: a review and consolidation

AbstractInterest in why firms conduct environmental, social and governance (ESG) activity is longstanding and increasing. Our understanding, however, remains fragmented with alternative accounts that seek to explain the relationship between ESG performance (ESGP) and corporate financial performance (CFP). This paper reviews alternative accounts for the relationship and finds that the weight of empirical evidence shows a positive, statistically significant but economically modest ESGP–CFP link, consistent with theoretical expectations. This economically modest relationship suggests ESG activity is unlikely to be primarily motivated by narrow measures of CFP. Further scholarship viewing ESG as part of overall firm activity would be constructive.

Does corporate social responsibility lead to improved firm performance? The hidden role of financial slack

PurposeThe purpose of this study is to investigate the relationship between corporate social responsibility (CSR) and corporate financial performance (CFP), as the findings on the relationship have been inconsistent and have led to calls to further examine this relationship. However, instead of investigating the connection between CSR and CFP, academics have stated that a contingency viewpoint must be used for uncovering the context and conditions which catalyse the relationship between both constructs.Design/methodology/approachThis study acquired the CSR data from 100 companies listed in Fortune’s most admired US companies between 2007 and 2016. These data were used to investigate the CSR–CFP link with the help of the dynamic panel data system, which is the generalised method of moments (GMM) estimator.FindingsThe results indicate that CSR and CFP have a neutral relationship which characterises the effect between CFP and CSR. However, this study found that financial slack positively affected the CSR–CFP relationship, implying that companies will only benefit from CSR activities if they have excess financial resources.Originality/valueThis study offers a very distinctive perspective regarding the CSR–CFP link according to the financial slack perspective.

The role of marketing capability in linking CSR to corporate financial performance

PurposeThe authors use signaling theory in proposing a conceptual framework that simultaneously incorporates both the mediating effects of corporate reputation (CR) and the moderating effects of marketing capability (MC) into the corporate social responsibility (CSR)–corporate financial performance (CFP) link and theorize a single moderated mediation model. The empirical results of the research confirm the theorized moderated mediation model among the four variables, where a firm’s CR plays a mediating role in the relationship between CSR and CFP, and a firm’s MC moderates the effect of CSR on CR exclusively in the first link. Both theoretical and practical implications of the moderated mediation model are discussed.Design/methodology/approachThis study uses structural equation model estimations with the relevant secondary datasets collected from publicly available databases.FindingsThe empirical results confirm the theorized moderated mediation model in the conceptual framework that uses signaling theory. Specifically, the results identify the moderating role of MC in only the CSR- CR link (but not in the CR and CFP link), such that CR plays a moderated mediation role in the CSR–CFP link.Research limitations/implicationsThe current research is not without limitations. These limitations mainly stem from data sets used in the empirical analyses. More details are discussed in the limitations and future research directions section.Practical implicationsThe empirical findings suggest that a firm needs to develop a consolidated CSR-marketing program, simultaneously satisfying stakeholders’ needs for both the firm’s socially desirable business practices and value-creating marketing programs to increase its CR, which will, in turn, lead to better profitability for the firm.Originality/valueTo the best of the authors’ knowledge, the current research is the first to use signaling theory in building a conceptual framework that theorizes a moderated mediation model regarding the simultaneous effects of CR and MC on the relationship between CSR and CFP and to empirically test this conceptual framework of the single moderated mediation model. By doing so, the current research clarifies an unanswered question in the literature of whether the underlying mechanism in the CSR–CFP link is based on a mediated moderation or moderated mediation of CR and MC.

Effects of Marketing Communication Capabilities on the link between Corporate Social Responsibility on Firm Value

An increasing number of studies have examined the effects of corporate social responsibility (CSR) activities on corporate financial performance (CFP) in the service industry. However, the extant literature does not provide comprehensive insights into the conditions on which the CSR–CFP link relies. In this study, firms’ marketing communication capability (MCC) is introduced as an important contingency variable, which determines the effects of CSR on the corporate financial performance, in the context of restaurant businesses. Multiple year data on the spending of public restaurant chains on different media are collected, and MCC is subsequently measured using the data envelope analysis. Then, a test is conducted to prove whether MCC moderates the relationship between CSR and firm financial performance. The empirical results support the hypothesis that MCC strengthens the effect of CSR on CFP. Through the findings, this research provides several interesting and important implications to the literature and managers of service firms.

Effects of Marketing Communication Capabilities on the link between Corporate Social Responsibility on Firm Value : Observations from the Service Industry

An increasing number of studies have examined the effects of corporate social responsibility (CSR) activities on corporate financial performance (CFP) in the service industry. However, the extant literature does not provide comprehensive insights into the conditions on which the CSR–CFP link relies. In this study, firms’ marketing communication capability (MCC) is introduced as an important contingency variable, which determines the effects of CSR on the corporate financial performance, in the context of restaurant businesses. Multiple year data on the spending of public restaurant chains on different media are collected, and MCC is subsequently measured using the data envelope analysis. Then, a test is conducted to prove whether MCC moderates the relationship between CSR and firm financial performance. The empirical results support the hypothesis that MCC strengthens the effect of CSR on CFP. Through the findings, this research provides several interesting and important implications to the literature and managers of service firms.

A Meta-Analytic Review of Corporate Social Responsibility and Corporate Financial Performance

The relationship between corporate social responsibility (CSR) and corporate financial performance (CFP) has long been a central and contentious debate in the literature. However, prior empirical studies provide indefinite conclusions. The purpose of this study is to review systematically and quantify the CSR–CFP link in a meta-analytic framework. Based on 119 effect sizes from 42 studies, this study estimates that the overall effect size of the CSR–CFP relationship is positive and significant, thus endorsing the argument that CSR does enhance financial performance. Furthermore, this work sheds light on the causal relationship between CSR and CFP. Subsequent financial performance is associated with prior social responsibility, while the reverse direction is not supported. This finding supports the instrumental stakeholder theory. As predicted, the meta-analysis results indicate that the measurement strategies of the two key constructs of CSR and CFP explain some variations of the CSR–CFP relationship. Last, this study examines the moderating effect of the environmental context on the CSR–CFP link. This work proposes that CSR in the developed world, with a relatively mature institutional system and efficient market mechanism, will be more visible than CSR in the developing world. The results show that the CSR–CFP relationship is stronger for firms from advanced economies than for firms from developing economies.

Sources of variation in linking corporate social responsibility and financial performance

PurposeThis purpose of this paper is to identify the possible sources of variation of results in prior studies linking corporate social responsibility (CSR) with corporate financial performance (CFP).Design/methodology/approachA meta‐analysis was performed on 51 prior studies included in Orlitzky et al. in order to ensure compatibility with previous results. The meta‐analysis is based on sub‐groups of papers in five‐year time intervals focusing on sample size and methodology employed as the sources of variation concerning the nexus between CSR and CFP.FindingsThe major finding of the study is that sample size and methodology are significant sources of variation in measuring the link between CSR and CFP.Research limitations/implicationsThe findings are likely to help develop a structural framework towards broadening and deepening our understanding of the debate regarding the sources of variation in the measurement of CSR and CFP link. This research is limited to papers published up to 1999 as included in Orlitzky et al. Future research can update the findings by using data beyond 1999.Originality/valueThis paper can be considered an advance on the previous research as it contributes to broadening our understanding of the possible source of causes of variation in results of studies linking CSR with CFP.

Deconstructing the Relationship Between Corporate Social and Financial Performance

For four decades, research on the role and responsibilities of business in society has centered on the business case for corporate social responsibility (CSR) and an increasing number of studies on the corporate social performance (CSP)—corporate financial performance (CFP) link emerged leading to controversial results. Heeding the call for a deeper understanding of the mechanisms linking certain CSR efforts to certain performance outcomes, this study provides a stakeholder-based organizing framework rooted in an extensive review of existing literature on the link between CSP and CFP. In so doing, we aim at guiding research and practice toward less simplistic understandings of the CSP–CFP connection, thus advancing the debate over the consequences of voluntary integrating CSR into business operations and into relationships with stakeholders. By disentangling specific drivers and outcomes of the CSP–CFP link, we underline the importance of setting clear boundaries and specifying levels of analysis to generate comparable results.

Toward a Unified Theory of the CSP–CFP Link

This article proposes a unified theory of the relationship between corporate social performance (CSP) and corporate financial performance (CFP). The theory provides a framework for rationalizing the various and contradictory findings in past empirical research. The theory is based on the parallels between the business and CSR domains, and thus draws on models from economics.