Measurement Of Corporate Social Performance Research Articles

Value relevance of multifaceted corporate social performance: how do country-specific factors matter?

This study examines the relationship between multidimensional corporate social performance (CSP) and shareholder value, considering the moderating impacts of country-specific factors: economic development, the political system, and culture. Based on a sample of public companies in Asian-Pacific emerging countries over the 2010–2020 period, the findings reveal that the aggregate CSP measure obscures the valuation effect, whereas individual CSP dimensions highlight positive valuation effects. The CSP valuation effect varies across dimensions aimed at different stakeholder groups. Notably, narrowly focused CSP dimensions (community, product responsibility, and workforce) demonstrate more pronounced valuation effects than broadly focused dimensions (human rights). Given CSP’s multifaceted nature, directing attention toward the aggregate measure or incorrect dimensions may yield unwarranted conclusions. To enhance shareholder value through CSP, importance-performance analysis suggests prioritized resource allocation to human rights, community, product responsibility, and workforce dimensions. Intriguingly, the positive valuation effect of CSP is amplified in countries with higher income-per-capita and lower corruption, indicative of economic development and a robust political system, respectively. However, humane orientation—a cultural proxy—exerts no moderating impact on the CSP-shareholder value relationship. Comprehending the moderating roles of country-specific factors bears significant implications for bolstering CSP across diverse global regions.

Model for Promoting Corporate Social Performance Measurement and Social Change: Elaboration from Causal Analysis Between the Both

Model for Promoting Corporate Social Performance Measurement and Social Change: Elaboration from Causal Analysis Between the Both

Relative corporate social performance and cost of equity capital: International evidence

AbstractThis research examines the relationship between firms' corporate social performance (CSP) and the implied cost of equity capital using a sample of 25,938 firm‐year observation from 49 countries during the period from 2002 to 2021. Using estimates of the firms' ex ante cost of equity capital, we examine its relationship with industry‐relative measures of the firms' CSP, its environmental and social pillars and sub‐pillars. We find that increased overall CSP reduces a firm's cost of equity capital up until a point, beyond which the marginal benefits of further CSP investment decrease. We find that the social pillar is the main driver of the reductions in cost of capital, in particular, a firm's performance in relation to its workforce, and that higher performance is increasingly rewarded with a lower cost of capital. Finally, we find that this relationship differs depending on the institutional context, with greater reductions in the cost of capital evident in countries with stronger institutional environments.

Corporate Governance Code Revisions, Corporate Social Performance and Firm Value: International Evidence

This study investigates the impact of corporate governance code revisions on corporate social performance, and its’ moderating effect on the relationship between corporate social performance and firm value. This study applies the two-stage Heckman sample selection bias approach to tackle endogeneity issues. The sample includes public listed firms from 35 countries that have released their national codes of corporate governance from 2007-2014. Prior to the analysis, we read through the national codes of corporate governance, and find that a majority of the recently revised codes provide new recommendations related to corporate social responsibility. Based on the regression results, we find that progressive corporate governance code revisions are positively related to corporate social performance. In addition, the progressive revisions positively moderate the relationship between corporate social performance and firm value, which is shown in those firms having above-median positive correlation between their corporate governance score and the code revisions. The overall results are robust to industry-adjusted measure of corporate social performance. Furthermore, we find that firm age is important in explaining the moderating effect of corporate governance code revisions.

Institutional ownership stability and corporate social performance

We examine the influence of institutional ownership stability on corporate social performance (CSP). We find that stable institutional ownership is associated with higher CSP, after controlling for the percentage of institutional ownership. The result is robust to alternative measures of CSP and various techniques to address endogeneity concerns. Additional analysis shows that this positive relation is driven by prudent institutional investors and by CSP dimensions directly pertinent to a specific, primary stakeholder group. Overall, we show that stable institutional investors are an effective mechanism to promote firms’ investment in long-term-oriented activities including CSR.

Does increased water efficiency improve financial performance? The important role of operational efficiency

PurposeThe purpose of this study is to examine the relationships between changes in water efficiency, profit and risk for firms in the global Consumer Packaged Goods industry. This study also aims to consider the moderating effect of operational efficiency on those relationships.Design/methodology/approachUsing a sample of 155 firms with annual corporate social performance and financial performance data from Bloomberg for the years 2010–2019, this study employs first-differencing panel regression models to obtain our results.FindingsThis study finds strong evidence that operational efficiency moderates the relationships between water efficiency, profit and risk. For operationally efficient firms, increasing water efficiency increases profit and reduces risk. But for firms that are not operationally efficient, this study finds the opposite effects. These findings suggest a threshold level of operational efficiency that firms should achieve before they can reap financial benefits from increases in water efficiency.Originality/valueDespite the increasing importance of water efficiency as a measure of corporate social performance, its effects on financial performance are not well studied. The relationship between operational efficiency and water efficiency has also not been examined. This work provides empirical evidence to better understand these important relationships. The major implication for managers is that operational efficiency is a foundational capability that should be developed before focusing on efforts to improve water efficiency. For operationally efficient firms, improvements in water efficiency can be an important mechanism to increase profitability and reduce risk.

Corporate social performance and financial risk: Further empirical evidence using higher frequency data

Using a unique dataset of corporate social responsibility rating – available on a monthly basis – we shed new light on the relationship between corporate social performance (CSP) and firm risk. Where previous studies use annual (at best) measures of CSP, assuming that a change in CSP leads a change in risk, we formally test the direction of the relationship using Granger causality. Looking at large UK companies over 2002–2018 (for a total number of 19,832 firm-months), we reject any causality (either way) between CSP and financial risk (both systematic and idiosyncratic risk). This shows that the CSP-risk relationship is not an endogenous one, contrary to what previous evidence has found. Given the structure of our panel data (long T and short N), we apply GLS based estimator to correct for serial correlation in our panel regressions. We find strong evidence that CSP has a negative impact on idiosyncratic risk; however, the effect of CSP on systematic risk is not statistically significant. The existence of a contemporaneous, rather than lagged relationship doesn't fare well with established CSP theories. Overall, our original approach has opened a new door to further the study of the link between CSP, financial performance and financial risk.

Corporate social responsibility and systematic risk: international evidence

PurposeThis paper aims to close gaps in the current literature according to whether there are differences regarding the relationship between corporate social performance (CSP) and systematic risk when diverse regions of the world are considered, and what the respective drivers for this relationship are. Furthermore, it tests the robustness to alternative measures for CSP and systematic risk.Design/methodology/approachThis study focuses on the impact of corporate social responsibility on systematic firm risk in an international sample. The authors measure CSP emerging from a company's social responsibility efforts by utilizing a CSP rating framework that covers a variety of dimensions. The instrumental variable approach is applied to mitigate endogeneity and identify causal relationships.FindingsThe impact of overall CSP on systematic risk is most distinct for North American firms and, in descending order, weaker in Europe, Asia–Pacific and Japan. Risk mitigation applies across all four regions. However, the magnitude of impact differs. While the most critical drivers in North America and Japan include product responsibility, Europe is affected most by the employees category and Asia–Pacific by environmental innovation.Practical implicationsThe findings help firms to control their cost of equity and investors may identify low-risk stocks by considering certain aspects of CSP.Originality/valueThis study distinguishes itself from previous literature addressing the connection between systematic risk and CSP by focusing on regional differences in an international sample, using the very transparent CSP measures of Asset4, identifying underlying impact drivers, and testing for robustness to alternative measures of systematic risk.

Corporate value creation, stock price synchronicity and firm value in China: implications for beyond

PurposeThis study introduces Social Contribution Value per Share (SCVPS), an indicator devised by the Shanghai Stock Exchange (SSE), as an easy-to-interpret Measurement of Corporate Social Performance (MCSP) to the international research arena. The authors first explore the informativeness role of voluntary disclosure of SCVPS in the stock market. The authors then go one step further to demonstrate the relationship between corporate value creation quantified by SCVPS and firm value.Design/methodology/approachThe study takes a new perspective – a quasi-natural experiment of SCVPS disclosure in 2008 and uses a Propensity Score Matched Difference in Difference model (PSM-DiD) to investigate the impact of SCVPS disclosure policy on stock price synchronization and firm value. Through manually recalculating all the values of SCVPS and its components, this study enables us to further investigate the relationship between corporate value creation for various stakeholders and firm value.FindingsThis study reveals that voluntary disclosure of SCVPS can signal firm-specific information to the market and reduce noise in returns, thus affecting stock price synchronization. The findings further demonstrate that such firm-specific information has value relevance to firm performance. Moreover, the authors demonstrate that corporate value creation for different stakeholders measured by SCVPS can significantly affect firm value. The moderating effects of ownership structures and industry types are also investigated, and an endogeneity test confirms the robustness of the findings.Practical implicationsThis study argues that SCVPS offers an economically viable way for firms, including small-and-medium-sized enterprises, in emerging economies to disclose corporate value creation and provide the public with a direct understanding and appreciation of the values created by corporations for stakeholders.Originality/valueThe result makes contributions to the MCSP literature and explores the informativeness of SCVPS disclosure. Besides, this paper demonstrates that SCVPS offers a good setting to explore the effect of corporate value creation on firm performance in an emerging market.

Corporate board diversity and its impact on the social performance of companies from emerging economies

AbstractGender diversity, and to a lesser extent cultural diversity, have become a focus of interest as predictors of corporate social performance. Based on a sample of 6150 observations from 1230 companies in 18 emerging economies, this article examines the influence of board cultural and gender diversity on three measures of corporate social performance: workforce, community, and product responsibility. Using structural equation modeling, it shows that the existence of board cultural and gender diversity positively affects the workforce, community, and product responsibility performance of companies. Concerning gender diversity, the results largely support other empirical studies. Our findings also contribute to the under‐researched area of cultural diversity. This study adds value to the existing literature on corporate board diversity, and can be used as a guide for companies in their pursuit of diversity.

How Company Size Bias in ESG Scores Impacts the Small Cap Investor

The rising popularity of socially responsible investing (SRI) has increased interest in the relationship between traditional measures of corporate financial performance (CFP) and the emerging field of corporate social performance (CSP). SRI investors have tended to have a large capitalization (cap) stock focus that has served them well in the past, but that may be suboptimal in the future if we return to a period of small cap outperformance. Using environmental, social, and governance (ESG) scores as a proxy for CSP, our research supports past studies showing a large cap bias in measures of CSP. Narrowing our focus, we find that within the US small cap stock universe, the correlation between firm size and ESG scores is greatly reduced. We construct small cap ESG leaders and laggards portfolios and test their performance. We demonstrate that performance was not affected by neutralizing these portfolios with respect to firm size. Our results reinforce the idea that CSP proxies such as ESG scores have the potential to practically enhance portfolio performance in US small cap stocks. <b>TOPICS:</b>ESG investing, analysis of individual factors/risk premia, portfolio construction, performance measurement <b>Key Findings</b> ▪ ESG size bias is not as significant in US small cap stocks as it is in US large cap stocks. ▪ Stocks with high (low) ESG scores outperform (underperform) the market in the US small cap space. ▪ It is possible for US small cap portfolio managers to use ESG as an alpha generating tool without taking size risk.

Does A Virtuous Circle Really Exist? Revisiting the Causal Linkage Between CSP and CFP

Previous studies have proposed a virtuous circle between corporate social performance (CSP) and corporate financial performance (CFP). However, a key challenge researchers face when empirically examining this virtuous circle is endogeneity. In this paper, we apply a well-developed method—dynamic panel data (DPD) estimation—to account for endogeneity and conduct two studies to reexamine the causal relationship between CSP and CFP. Study 1 relies on KLD ratings from 1997 to 2012 as the measure of CSP. According to the results of Study 1, although CFP measured as ROE may have a causal impact on CSP, it is doubtful whether there is a causal influence of CSP on CFP. Study 2 relies on the sustainability scores provided by Sustainalytics from 2009 to 2018 as the measure of CSP. Study 2 reports that CSP does not causally influence CFP and that CFP does not have a causal impact on CSP. Together, Study 1 and Study 2, using different measures for CSP, suggest that a virtuous circle between CSP and CFP may not exist. Our study suggests that doing good may not necessarily lead to doing well and that doing well may not naturally result in doing good. Thus, our study implies that future studies should seriously consider the causal mechanisms through which CSP may influence or may be influenced by CFP. Our paper also discusses the implications for CSP research and for management and organization research. The limitations of applying DPD estimation to empirically examine the causal relationship between CSP and CFP are also discussed.

Corporate Social and Financial Performance in Chemical Industry in the United States

The purpose of this study is to investigate the relationship between corporation financial performance (CFP) and corporate social performance (CSP). This study uses return on assets (ROA) to measure corporate financial performance. We use two different measurement strategies independently to measure corporate social performance: (a) KLD index as perceptual CSP measure strategy; (b) Percentage change in waste produced by the corporation (TRI index) as behavior CSP measure strategy. Using the sample of 123 U.S chemical firms from 2009-2018, this paper finds that KLD index has a significantly positive association with CFP, while TRI index is not significantly associated with CFP. Meanwhile, this paper also finds that seven individual dimensions of CSP are significantly related to CFP except for the environment dimension. The result expands the importance of CSP measurement methods from cross-industry research to single industry research and contributes to the CSP individual dimensions literature.

The impact of corporate social and environmental performance on credit rating prediction: North America versus Europe

We quantify to what extent the quality of credit rating predictions improves through integrating measures of corporate social performance (CSP) in an established credit risk model. Our analysis provides comprehensive evidence of the comparative informational advantage of considering CSP in predicting credit ratings of North American and European firms. In the North American sample, both environmental and social performance have an explanatory impact. The out-of-sample prediction quality improves by more than 0.8%. By contrast, only social performance increases the explanatory power in the European sample, while environmental performance does not. Overall, we show that CSP is a relevant variable for predicting credit ratings. In general, our findings support the risk mitigation view of CSP, indicating that firms with high CSP are less risky and thus have better credit ratings. However, the quality of the relationship depends on the socio-economical and cultural environment as well, as can be seen from the differing results in North America and Europa.

Corporate social performance and financial performance relationship: A data envelopment analysis approach without explicit input

The aim of this paper is twofold: to provide a novel methodology for the development of a multidimensional and aggregated measure of Corporate Social Performance (CSP) based on Data Envelopment Analysis (DEA), and to investigate the relationship between CSP and financial performance (FP) while accounting for endogeneity issues. Hence, we exploit several estimators from both static panel and dynamic panel data models to show that the GMM estimator is more adequate than the traditional estimators based on fixed or random effects. Our results show that corporate social performance impacts negatively and significantly financial performance.

Is board diversity an antecedent of corporate social responsibility performance in firms? A research on the 500 biggest Turkish companies

PurposeThis study aims to understand whether board diversity has a direct effect on “corporate social responsibility (CSR)” performance of companies or not. In addition, this study also aims to examine the moderation effect of age and education level of female board members on the relationship between board gender diversity and CSR performance.Design/methodology/approachA “corporate social performance (CSP)” measurement instrument was designed to conduct a content analysis that analyzes the CSR disclosure in the annual reports of Turkish companies listed on the “500 biggest Turkish companies” report of “Istanbul Chamber of Industry (ISO)” in 2015. The data coming from content analysis of 117 company reports were analyzed by using hierarchical regression analysis.FindingsDespite of supporting the increase in CSR performance when there is a greater presence of independent board members in an organization, evidence supports that ratios of female and foreign board members do not have any significant effect on CSR performance.Originality/valueThe study contributes to previous literature on board diversity and CSR performance as follows. First, this paper contributes to previous literature by examining and testing independent, female and foreign board members as a new antecedent of CSR performance in research on Turkey; second, by examining a sample of the “500 biggest Turkish companies” and providing some tips about both Turkey and other developing countries; third, by reopening the debate about the positive impact of a greater presence of independent directors on board on CSR performance and the non-effect of female and foreign board members. Finally, it also offers a partially new CSP measurement instrument based on content analysis.

Does It Pay to Be Sustainable? Evidence from European Banks

This paper aims to explore the relationship between the economic, environmental, social, and corporate governance component of Corporate Social Performance (CSP) and the Corporate Financial Performance (CFP) in the European banking sector. The empirical analyses, based on panel data, are performed on a sample of 70 listed European banks (EU28) over the period 2011-2015. The main results show a significant and positive relationship between the aggregated CSP measure and the average profitability of banks&amp;#39; assets and market capitalization. Furthermore, the social component positively affects the average return on assets and equity; the economic component is positively associated with the performance of prospective profitability and market capitalization; finally, the environmental component is positively associated with the ROAA. Sustainable banks, in line with the stakeholder Theory, through ethical and social policies, might increase their financial and economic performance.

The influence of social disclosure on the relationship between Corporate Financial Performance and Corporate Social Performance*

ABSTRACT This study’s general objective is to investigate the moderating effect of Corporate Social Performance Disclosure (D-CSP) on the relationship between Corporate Social Performance (CSP) and Corporate Financial Performance (CFP). Based on this objective, the study presented a model in which D-CSP acts as a moderator in relation to primary stakeholders (employees, community, and suppliers). D-CSP is a mechanism through which the various social aspects involved in discretionary policies, actions, and activities identified in the management for stakeholders process can be evaluated. A sample of 1,147 companies belonging to 10 different sectors and five continents was used to test the model. Data were collected from the Bloomberg database, totaling 5,735 observations, from 2010 to 2014. The relationship was tested using the multiple linear regression model involving panel data with fixed effects, and the Newey-West robust standard errors correction. Three constructs, D-CSP, CSP, and CFP, were used to perform the tests. As a CSP measure, the CSP of the employee, supplier, and community stakeholders was used. As a D-CSP measure, the CSP disclosure scores available from the database were used, and return on assets (ROA) was used as a CFP measure. The tests carried out indicated the existence of a positive moderating effect of disclosure on the relationship between the CSP of primary stakeholders and CFP. Besides presenting a positive CSP in relation to the primary stakeholders the results enable it to be inferred that these results need to be disclosed, thus contributing to higher corporate financial performance.

CSR and cost of capital: evidence from Japan

PurposeThis study aims to examine the link between corporate social performance (CSP) and the cost of capital of Japanese firms in 2008-2013, considering the influences of banking relationships and ownership structure.Design/methodology/approachIt examines the relation between CSP and the cost of capital in terms of the cost of debt, cost of equity and weighted average cost of capital, using a composite CSP measure based on stakeholder relationships. A regression model is adopted, controlling for bank dependency, ownership structure and firm-specific attributes.FindingsInstitutional ownership influences the CSP–cost of equity relation and reduces the cost of equity, while CSP is perceived by debtors as not information-mitigating for the observed period. For 2008-2010, the relation between CSP and bank dependency increases the cost of debt; however, the positive influence of bank dependency on the cost of debt dilutes during 2010-2013 as the shift to a more market-oriented financial market in Japan occurs.Practical implicationsAlthough bank borrowing is important, especially for small firms, non-financial disclosure makes external financing more flexible. Institutional investors concerned about the non-financial aspects of business, therefore, play an important role in mitigating the information asymmetry that exists in the capital market.Originality/valueThis study extends research on the CSP–cost of capital link by considering structural changes in financial systems (e.g. capital market perception of CSP and banks as delegated monitors).

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.