Corporate Social Responsibility Intensity Research Articles

Moderating role of firm characteristics on the relationship between corporate social responsibility and financial performance: evidence from India

PurposeThe effect of corporate social responsibility (CSR) on corporate financial performance (CFP) is shown to depend on both firm-specific and external factors. This study investigates the moderating role of two firm-specific factors – the firm life-cycle stage and ownership structure – on the CSR–CFP relationship in a developing economy setting – India.Design/methodology/approachThe study covers 1,419 listed companies in India during 2015–21. The firm lifecycle is represented using firm age and future growth prospects. Ownership is represented through a dummy variable and promoters’ holding percentages. Return on assets (RoA) is used as a measure of CFP, while CSR intensity, i.e. the ratio of CSR expenditure to profit after tax (PAT), is used to represent CSR. Fixed effect panel regression and generalized method of moments (GMM) models are used for data analysis.FindingsCSR expenditure has a significant negative impact on CFP. Firm age and future growth prospects amplify this negative impact, indicating that the firm life-cycle has a significant negative moderating effect on the CSR–CFP relationship. Furthermore, the impact of CSR on CFP is worse for government companies than private ownership. Promoters’ holdings have a positive impact on the CSR–CFP relationship.Research limitations/implicationsThe results question the validity of mandatory CSR expenditure on companies operating in developing countries and call for a differentiated policy approach to CSR expectations based on firm characteristics. This study also enhances the existing literature on CSR–CFP.Originality/valueThe growing research on CSR–CFP has limited coverage of firm characteristics as contributing factors. Hence, this paper helps in enhancing the existing literature on CSR–CFP and makes it more relevant to firms with specific characteristics.

The risk-return tradeoff: are sustainable investors compensated adequately?

We investigate the returns from investing according to corporate social responsibility (CSR) criteria using factor model estimations for a large sample of U.S. firms over the period 2003–2017. To identify the CSR intensity that allows investors to optimize their portfolio returns for a given amount of risk, we relate factor-adjusted portfolio returns to a variety of risk measures. This consideration is important as equity risks have been shown to significantly decrease with CSR. Surprisingly, our results indicate that the lowest CSR-rated portfolios are able to outperform their higher CSR-rated counterparts: Not only do they show higher factor-adjusted returns but they also deliver higher return-to-risk ratios. This indicates that equity returns in our sample decrease even more strongly than the corresponding risks with rising CSR activity.

Social capital, trust, and bank tail risk: The value of ESG rating and the effects of crisis shocks

Using a global sample of 244 banks in 52 stock markets, we investigate the effect of corporate social responsibility (CSR) on bank tail risk in normal and turbulent times. Our analysis shows no significant evidence that CSR intensity protects banks from tail risks ex ante or during the global financial crisis of 2007–2009. However, investors appear to become more tolerant and more lenient towards banks with stronger CSR post ante economic recession by reducing the likelihood of extreme devaluation of banking stocks. Socially responsible banks with higher social capital and trust (associated with superior CSR performance) experience lower idiosyncratic and systematic tail risks even in the context of the COVID-19 pandemic in 2020. Our empirical evidence implies that the trust between banks and investors started to build through banks’ investments in social capital through committed CSR performance since the credit crunch erupted.

Corporate social responsibility and financial performance – the role of corporate reputation, advertising and competition

PurposeThe research on corporate social responsibility (CSR) and firm performance (FP) has seen a surge over the years. However, the role of corporate reputation (CR), advertising strategy and market competition is still unclear. The purpose of this study is to consider this gap and test an integrative model of CSR-FP, in the context of India.Design/methodology/approachThe data for CSR expenditure were collected from the annual reports of the selected companies. CR was captured using the ranks of Fortune India 500, Business Standard 1,000 and Economic Times 500. The financial data were collected from CMIE (Prowess) database.FindingsResults of structural equation modeling (SEM) revealed a significant relationship between CSR expenditure of the firm and its reputation; but no relationship between CR and performance. When CR increases, the performance of a firm may not improve. Competitive intensity (CI) had no statistically significant role in the CR-FP relationship for performance. Results suggest that reputed firms perform well despite high competition within an industry. High reputation is effective in improving performance irrespective of competition. CI has a positive impact in the reputation–performance linkage. Advertising intensity (AI) played a significant moderating role in the CSR intensity and CR relationship.Originality/valueThis research represents an added value for the literature on CSR by highlighting the importance of CR, advertising strategy and market competition in the relationship between CSR and FP. The findings have several implications for theory and practice, which have been discussed in the study.

Impact of corporate social responsibility intensity on firm-specific risk and innovation: evidence from Japan

PurposeThe purpose of this paper is to investigate investors’ perception of corporate social responsibility (CSR) and its risk-mitigating effects on firm-level innovation in Japan from 2006 to 2017. The authors examine the influence of CSR intensity on firm-specific risks, focusing on the risk-moderating effect of CSR on innovation.Design/methodology/approachThe authors conducted a simple slope analysis and panel data regressions with input and output innovation measures and idiosyncratic risk based on an asset-pricing model.FindingsThe results demonstrate that CSR intensity not only reduces firm-specific risk directly but also indirectly by negatively moderating the relationship between firm-level innovation and idiosyncratic risk.Research limitations/implicationsSignaling trust to capital markets, CSR engagements in the manufacturing industry are clearly important for innovative firms with active research and development undertakings.Practical implicationsCorporate managers should further expand their efforts to make non-financial disclosures available, considering the interactions between CSR intensity and research and development financial risk.Originality/valueIn the context of Japanese firms, this study demonstrates the interaction between CSR practices and innovation activities from the perspective of long-term management of corporate sustainability.

Corporate social responsibility intensity, management earnings forecast accuracy, and investor trust: Evidence from Japan

AbstractThis study examines whether and how corporate social responsibility (CSR) intensity affects investment performance directly, as a signal of investor trust, and indirectly, by impacting management earnings forecasts accuracy. We find that investors benefit from high CSR firms as they avoid unexpected stock volatility while paying the cost of CSR by lowering returns. The results suggest that CSR intensity stabilizes stock returns for high CSR firms in the long run and moderates management disclosure bias in the short run. Our findings imply that CSR activities based on stakeholder relationships would help signal firm‐level trust and restrain myopic investment in the capital market. Stakeholder engagement in order to build investor trust is not only essential for corporate sustainability and long‐term success but also a key determinant in well‐functioning capital markets with unstable public trust in business and finance.

Corporate social responsibility intensity: Shareholders’ value adding or destroying?

This paper examines whether an intensification of corporate social responsibility activities adds or destroys firms’ value in Nigeria. Fixed effect regression analytic tool was used to analyze the data from a sample of 56 listed firms on Nigerian Stock Exchange (NSE) between 2009 and 2018. We followed environmental, social and economic responsibility activities rating based on Global Reporting Initiative (GRI) disclosure guidelines and Korean Economic Justice Institutes (KEJI) social responsibility efficient interpolation rating formula in the measure of firms’ social responsibility. The study found that firms that engage in intensive social responsibility yielded positive and insignificant effect on firms’ stock value. This implied that an aggressive social responsibility is not the best approach as it possesses the potential to destroy shareholders’ value. On the other hand, we found evidence that medium social responsibility model significantly affected firms’ financial performance (coefficient = 0.165; p-value >0.05), which suggests that the best social responsibility strategy that significantly increases shareholders’ value is the middle course model. A further test showed that generally environmental, social and economic responsibility activities of firms significantly add to firms’ market value (Coefficients = 0.028; 0.216; 0.037; p-values<0.05). However, the degree of the effect is contingent on the intensity of the activities and governance structures. Governance structure and board diversity explained firms’ efficient CSR strategy that promotes middle course strategies while CSR aggressiveness is explained by unitary model of board leadership. Thus, implementation within an industry average performance adds significantly to investors’ value provided that there is effective corporate governance structure.

Is privatization a socially responsible reform?

We assess the link between corporate social responsibility (CSR) and government ownership using a unique sample of privatized firms (PFs) from 41 countries over the 2002 to 2014 period. We find that PFs have, on average, better CSR intensity than other publicly listed firms. Further tests show a nonlinear relation between residual state ownership and CSR intensity that depends on the trade-off between political objectives of the government and profit maximization objectives of private owners. In addition, country-level institutions affect the state ownership–CSR intensity relation, and PFs benefit from higher valuation and lower equity financing costs through improved CSR.

Do CSR Awards Motivate Award Winners' Competitors to Undertake CSR Activities?

This study proposes that firms that witnessed competitors’ winning corporate social responsibility (CSR) awards will experience an upward comparison, which can motivate them to undertake intensive CSR activities in the post-award period. The influence of witnessing competitors’ winning CSR awards on focal firms’ CSR intensity is stronger when the focal firms have high similarity with CSR award- winning firms. Our findings also show that CSR activities conducted by focal firms after witnessing competitors’ winning CSR awards in the post- award period will give rise to higher performance compared with CSR activities by the same firms in the pre-award period. Using a sample of CSR award- winning firms’ competitors, we find empirical support for our arguments.

Employee political affiliation as a driver of corporate social responsibility intensity

ABSTRACTThis article explores the connection between corporate social responsibility (CSR) intensity and the political affiliation of elite management and lower-level personnel and offers evidence that CSR initiatives are frequently driven from the bottom-up by employees actively expressing their sociopolitical views. While directors and CEOs play an important role within certain CSR dimensions, results suggest that employees are significantly more influential overall. A one-standard-deviation shift to the political left for directors, CEOs and elite executives yields gains in CSR of 5%, 9% and 3%, respectively, while a one-standard-deviation left-shift for employees produces a 33% increase. Findings may help to explain why similar firms engaging in comparable social initiatives can experience heterogeneous returns to CSR outlays and suggest that a corporate culture approach may be warranted in future studies.

Corporate Social Responsibility As a Grassroots Initiative

We explore the connection between corporate social responsibility (CSR) intensity and the sociopolitical views of CEOs, elite executives, and non-elite employees and find that the majority of CSR initiatives arise as grassroots efforts rather than top-down directives. The relationship between the personal views of elite executives and CSR intensity is relatively weak, and once we account for variations in the political affiliations of employees there is no association between the personal agendas of CEOs and CSR engagement levels. Results are inconsistent with the view that CEOs invest in CSR to entrench themselves or to create and maintain reputations as good global citizens, and help to explain why similar firms engaging in comparable social initiatives experience heterogeneous returns to CSR outlays.

Is social responsibility driven by industry or firm‐specific factors?

PurposeThis study aims to revisit the relative importance of industry and firm level effects on corporate social responsibility (CSR), with the objective of clarifying their diverse effects on CSR.Design/methodology/approachThe authors suggest that CSR is a shared strategic asset based on insights from the industrial organization and institutional schools, taking into account that there are determinants of CSR that may be operating inside the corporation according to the resource‐based view. They employ a variance components method and a sample compiled of 495 US firms from 19 industries using five‐year periods.FindingsThe study indicates that firms retain considerable self‐determinism regarding their CSR trajectories, but the latter also represent a shared strategic asset. Thus, these results combined imply that CSR needs to be examined on both levels simultaneously.Practical implicationsThe results of this study can provide non‐governmental organizations and governmental and regulatory institutions with an indicator that explains the performance variation levels of each dimension of CSR, and can help improve tools designed to promote it. Furthermore, the authors' research provides managers with evidence of CSR variability among CSR dimensions that could help in strategic decision‐making. In addition this research can provide assistance and give perspective regarding selection criteria for investment portfolios in responsible investment funds.Originality/valueThe industry effect is an important factor to consider in CSR intensity. The variation in firm and industry effects on CSR strategies has not been extensively studied; hence, explaining the sources of performance differences regarding industry and firm factors is a key theoretical and empirical issue in the field of management.