Financial Performance Link Research Articles

The Moderating Role of Country Governance in the Link between ESG and Financial Performance: A Study of Listed Companies in 58 Countries

Corporate environmental, social, and governance (ESG) performance is expected to positively affect financial performance because it helps firms gain sociopolitical legitimacy from receiving positive stakeholder awareness and gaining key resources. However, the research on the relationship between corporate ESG performance and financial performance has yielded mixed results. This paper explores the impact of the country governance environment on the ESG–financial performance link. We propose that the positive ESG–financial performance relationship is stronger for firms in countries with better governance. Empirical analyses using a large panel dataset covering 11 years and 58 countries support our arguments. We found that countries with more effective governance in political stability, regulatory quality, and control of corruption strengthen the positive ESG–financial performance relationship. The implications of our findings are significant for firms that face different governance environments and develop sustainable business strategies.

Does Innovation Play a Role in the Relationship Between Corporate Social and Financial Performance? A Systematic Literature Review

Abstract: Purpose: This research aims to provide a comprehensive knowledge map of the intellectual structure of the field of study on the role of innovation in shaping the social and financial performance link. Research methodology: Systematic literature review using the SALSA (Search, Appraisal, Synthesis, and Analysis) Method based on a 10-year data set (2012-2021) from the “Google Scholar” database. Results: The findings point to the existence of a positive influence of innovation in linking Corporate Social Performance to firm Financial Performance and reveal the existence of five themes in the research, specifically complementarity between Corporate Social Responsibility and innovation, the special case of small and medium-sized enterprises, and the context of emerging countries. Also, we highlight a lack of research in this field and the theoretical, design, and methodological limitations of previous studies. Limitations: The primary limitation of this study is the small number of studies that address the research question addressed by this systematic literature review, which was generated by the research protocol. Contribution: The study suggests avenues for future research to address the previous shortcomings. Particularly, identifying the condition effects through which innovation may affect the studied relationship. Keywords: 1. Corporate financial performance (CFP) 2. Corporate Social Responsibility (CSR) 3. Innovation 4. Mediation 5. Moderation

Environmental practices, family control, and corporate performance: Evidence from Chinese family firms

This study analyzes Chinese family firms to determine how environmental practices influence corporate performance in consideration of the moderating effect of family control. Based on hand-collected data of environmental practices and 698 Chinese listed family firms, the results show that the environmental practices and corporate financial performance (CFP) link can be captured by a U-shape, and environmental practices are positively associated with corporate social performance (CSP). Furthermore, family control positively moderates the relationship between environmental practices and performance. The findings provide systemic understandings of the CFP and CSP of family firms through important insights into environmental practices and family control.

Understanding the effects of Environment, Social, and Governance conduct on financial performance: Arguments for a process and integrated modelling approach

To date, an overwhelming number of research findings on Environment, Social, and Governance (ESG) conduct and financial performance remains inconclusive. Furthermore, research has not identified nor explained the “underlying mechanisms” behind this relationship. To encourage future research, we discuss the mechanisms by identifying the first-order, mediating, and moderating variables. We synthesize recent studies for emerging themes and implications; argue for a process and integrated approach for modelling causality between ESG conduct and financial performance variables; and suggest methods to analyze the models. We also advocate for researchers to explore the idea that balancing corporate conduct among the E, S, and G components may provide revelations about financial performance. We also discuss how incorporating “greenwashing” in a process and integrated model may explain the ESG conduct and financial performance link, or more than likely the lack of it.

Does supplier involvement enhance financial performance? The encapsulation effects of product modularity and smartness

PurposeThis study aims to explore the conditional relationships between supplier involvement and financial performance. From a problem-solving perspective, this study takes the focal firm as a problem-solving system. It is postulated that supplier involvement enhances financial performance by helping solve complex problems of new product development. Furthermore, product modularity and smartness are considered contingent factors to clarify the boundary conditions.Design/methodology/approachThe ordinary least squares regression was conducted to test the hypotheses based on survey data from 136 high-tech firms in China.FindingsSupplier involvement is positively related to financial performance. Product modularity weakens the impact of supplier involvement on financial performance. Furthermore, product smartness strengthens the negative influence of product modularity on the relationship between supplier involvement and financial performance.Originality/valueThis study combines supplier involvement with product attributes. It takes a problem-solving perspective to rethink suppliers’ roles in new product development as problem-solvers rather than resource holders. Furthermore, this study advances the encapsulation effects of product modularity and smartness to influence the supplier involvement–financial performance 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.

The fit between corporate social responsibility and corporate governance: the impact on a firm’s financial performance

This study asserts that the relationship between corporate social responsibility (CSR) and a firm’s financial performance needs to be examined with reference to the ‘fit’ between CSR and corporate governance (CG). Therefore, we develop a model to analyze the moderating effects of corporate governance characteristics (board size, ownership concentration, board gender diversity and board independence) on the CSR-firm’s financial performance link (measured by Tobin’s q). The model is tested on a sample of 17,500 observations over an 11-year period and mainly finds support for the moderated hypotheses. The findings indicate that while board size and gender diversity moderate the CSR-firm’s financial performance link positively, CSR interacting with ownership concentration negatively impacts a firm’s financial performance. In addition, we find no support that board independence moderates the CSR-firm’s financial performance link. We advance CSR research by demonstrating the moderating effects of corporate governance characteristics on the CSR-firm’s financial performance link.

Importance of Innovation Resources for Market Orientation – Financial Performance Link: Mediating Role of Proactive Market Orientation

Abstract The purpose of this paper is to explore the relationship between market orientation, innovation resources and companies’ financial performance. Focus is put on the mediator role of proactive market orientation (PMO) in the relationship between reactive market orientation (RMO), innovation resources and financial performance in the context of Central and Eastern European (CEE) countries. Research builds on reliable scales. Four hundred and fifteen usable questionnaires were collected from companies in Slovenia with more than 20 employees. The results show a strong and positive relationship between RMO and PMO. The impact of RMO on innovativeness as an element of organisational culture is both positive and stronger than the impact of PMO. PMO proved to have a significant positive influence on the capacity to innovate. While innovativeness alone does not directly influence financial performance, the results do confirm the positive impact of an organisational capacity to innovate on financial performance. The finding of our paper is that when PMO was included as a mediator between RMO and the capacity to innovate, the result was that this indirect impact proved to be one of the strongest in the model. Also, it proves that in CEE countries, it is important to stress the influence of market and market orientation in building innovation resources and consequently financial performance. The limitation of the current study is that we considered the relationship only among few marketing resources and organisational performance. In future research, additional measures of market performance may be introduced as mediators between innovation resources and financial performance.

Does CEO power moderate the link between ESG performance and financial performance?

PurposeBased on stakeholder and upper echelons theory, this study aims to analyze whether the link between environmental, social and governance (ESG) performance and financial performance is moderated by chief executive officer (CEO) power.Design/methodology/approachListed corporations with reference to the German two-tier system (HDAX and SDAX) for the business years 2010-2018 (775 firm-year observations) have been included. Fixed effects panel regression analysis was conducted to analyze the link between ESG performance (in total and its three pillars) and financial performance (ROA), with special reference to the interaction of a CEO power index.FindingsWhile ESG performance has a positive impact on financial performance, the link is more pronounced by CEO power. Thus, in line with prior research on the one-tier system, CEO incentives can positively contribute to the CSR-business case in the German two-tier system. The results remain constant after conducting several robustness checks.Originality/valueA key contribution to the empirical CSR literature can be stated, as the moderating role of CEO power in the ESG–financial performance link is rather neglected in prior studies. Thus, corporate governance and sustainability should be classified as interactive aspects for the business case of a successful stakeholder management.

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.

Impacts of Industrial Heterogeneity and Technical Innovation on the Relationship between Environmental Performance and Financial Performance

In this paper, we investigate the relationship between environmental performance (EP) and financial performance (FP) from the perspective of technical innovation in Chinese industrial sectors. We also consider industrial heterogeneity and take temporal variations of the link into account. We collect the required data from different Chinese statistical yearbooks from 2004 to 2015. We use an aggregated index of environmental pollutants as a proxy for EP and return on assets as a proxy for FP, and we employ research and development expenditure to capture technical innovation. The empirical results indicate that industrial heterogeneity exists and the EP–FP link varies in different industrial groups. There is no evidence that the EP–FP link becomes more positive and more significant over time. Furthermore, the mediation effect of technical innovation and environmental pressures can jointly affect the link. Finally, technical innovation partially mediates the EP–FP link but only in Chinese light-polluting sectors not in heavy-polluting sectors. The mediating role of technical innovation has a great impact on shaping the EP–FP link. When technical innovation partially mediates the focal link, apart from the indirect link, the direct EP–FP link is likely to be positive. If not, the direct EP–FP link is likely to be negative.

Revisiting the Corporate Social and Financial Performance Link: A Contingency Approach

AbstractThis study draws on and extends contingency theory, in relation to stakeholder theory to understand the corporate social performance (CSP) and financial performance (CFP) link, by evaluating under what circumstances CSP influences CFP. Contingencies include stakeholder configurations/salience and crisis conditions. Using differentiated measures of CSP, this study examined financial effects of various specific stakeholder facing activities pre‐ and post‐crisis in the food/beverage and pharmaceutical industries, and in firms selling search versus experience goods. The results indicate that pre‐crisis CSP is related to post‐crisis financial effects, but the relationships are dependent on the interactions among the contingencies studied, so investments in certain social areas improve CFP, whereas others may hurt it. This confirms that a finer grained approach should be taken to the examination of CSP and CFP. On a practical basis, it shows that deep stakeholder knowledge and attention to complementary factors to CSP, such as advertising, must be understood, so CSP activities are of benefit to the firm.

When does it pay to be good – A contingency perspective on corporate social and financial performance: would it work?

The findings on corporate social and financial performance research has exposed the universal approach as tenuous and questionable, so the current approach of corporate social and financial performance research has been subject to severe criticism. Instead of exploring a universal corporate social and financial performance link, scholars have called for a contingency perspective in order to determine the conditions and context that catalyzes positive connections between the constructs.This study systematically reviews the literature on the moderators exploited in corporate social and financial performance research and finds, by and large, that a positive corporate social and financial performance association dominates, although the relationship is stronger in advanced economies and institutionalized contexts. Although research on the contingency perspective has progressed, theoretical support for this relationship is thin, and the lack of appropriate research design and stereotyped constructs thwart its positive implications.A review of the literature shows that although organizational factors seem to moderating the corporate social and financial performance relationship strongly yet industry and country factors also tend to affect this association. Important consistencies included that a dynamic business environment reinforces the corporate social and financial performance relationship. Differentiation in social responsibility practices moderates the responsibility-performance link, but not often positively. The effect of R&D intensity is equivocal, and advertising intensity did not strengthen this relationship across the level. Avenues for future research conclude our discussion.

Does it really pay to be good, everywhere? A first step to understand the corporate social and financial performance link in Latin American controversial industries

Most research studying the corporate social performance (CSP)–corporate financial performance (CFP) link has utilized developed country samples. Also, this literature has generally focused on a wide variety of industries, ignoring the fact that certain sectors – such as controversial industries – have graver social and environmental issues. Hence, a gap exists in this tradition when it comes to emerging markets and controversial industries. This paper attempts to fill this void by providing preliminary evidence and insight on the matter. Based on an exploration in six Latin American countries and five controversial industries, we find a negative bidirectional association (or a non‐significant one at best) between CSP and CFP. These results tend to contradict the mainstream conclusion of a positive bidirectional link, suggesting that institutional and market‐level forces play a major role in shaping this relationship.

The Mediating Role of Corporate Governance and Corporate Image on the CSR-FP Link

This study advances research on corporate social responsibility (CSR) through investigating the CSR-firm financial performance (FP) link. It develops a model based on legitimacy and institutional theories and considers two important intervening variables – corporate governance (CG) and corporate image (CI). The CSR practices are supposed to affect the CG codes and principles in different contexts, especially in developing countries. Empirical results, based on a sample of 155 firms in a developing country, support the link between CSR and FP; however, the effect is indirect while CG and CI fully mediate this link. The findings indicate that the CSR engagements help better governance practice and improve CI through establishing good internal controls and monitoring that ultimately enhance FP. The implications are valuable for academics, managers, and policy makers who are interested to measure the impact of intervening variables on the CSR-FP relationship.

Corporate Social Performance and Financial Performance: Sample-Selection Issues

The vast majority of extant empirical research examining the relationship between corporate social performance (CSP) and financial performance (FP) selects samples of only those firms which are observed engaging in CSP. In this study, the authors assert that firms’ efforts to pursue CSP and subsequently their appearance in social-choice investment advisory (SIA) firms’ ranking databases are non-random. Studying the CSP–FP link using selected samples of only those firms whose social performance is ranked by SIA firms introduces a sample-selection bias which limits generalization of results to a population of all firms, and at worst provides alternate explanations for observed relationships. The authors test these assertions on a large sample of public corporations in the United States over 6 years and find a sample-selection bias. Upon correction of this bias, this study confirms the positive impact of CSP on FP.

Analysis on Corporate Social - Financial Performance Link

Study explore and investigate the influence of corporate social responsibility in multi level facets for performance outcome and corporate social behavior . Using corresponding and coordinated sample of different financial institutions. Data is collected by banks annual reports issuing during 2008-2012. To examine and verify the relationship between CSR and CFP , Regression model is used. Findings from data is revealed that positive correlation among corporate social responsibility and corporate financial performance. If financial institutions more invest for CSR practices then they will get higher performance and net profit for long lasting period.

No CPR for CSR: A Call to Abandon Search for the “Holy Grail”

Aguinis and Glavas (2013) offer a new attempt to explain the consistently weak but consistently inconsistent findings regarding the relationship of corporate social responsibility (CSR) to financial performance. Like many others writing in the field, Aguinis and Glavas appear to believe that further efforts to categorize types of CSR will somehow identify CSR forms that are financially rewarding. In this response, I challenge four assumptions underlying the Aguinis and Glavas manuscript: (a) that CSR has received little attention in the micro literature; (b) that CSR can be meaningfully conceptualized and operationalized; (c) that a continued search for the “holy grail” of a CSR–financial performance link is likely to be fruitful; and (d) that the “peripheral–embedded” distinction is useful and appropriate.

2012 Presidential Address—On Compassion In Scholarship: Why Should We Care?

2012 Presidential Address—On Compassion In Scholarship: Why Should We Care?

The corporate social responsibility–financial performance link in the U.S. restaurant industry: Do economic conditions matter?

This study examines the role played by economic conditions (recessionary periods) on the link between corporate social responsibility (CSR) and corporate financial performance (CFP) in the U.S. restaurant industry. The choice of industry setting is based on the fact that the restaurant industry is subject to consumer discretionary expenditures and is thus highly sensitive to the state of the economy. This study further examines the relationship between CSR and CFP by dichotomizing CSR activities based on whether they are related to the firm's core operations or not, thus parsing out the effect of operations-related (OR) and non-operations-related (Non-OR) CSR activities, providing a more nuanced explanation of how some CSR activities may be more beneficial than others, to firm value in hard economic times.