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CSR has emerged as a global issue. Studies conducted in this regard has revealed that being socially responsible had helped companies in gaining better financial performances, enhancing their brand image, getting support from various stakeholder etc. Paper presents the views of researchers about CSR, its impact on various performance indicators, measures adopted by the researcher and finally empirical litterateur on the association between corporate social responsibility and financial performance. Researchers have reported positive, negative and neutral influence of corporate social responsibility on financial performance. It is stated by few researchers that this relation is bidirectional. They agree that it add more understanding and rigor to study their relationship in the presence of some moderating or mediating variables. Further it had been found that socially responsible investments are likely to perform better than traditional investments.
Keywords: Corporate social responsibility (CSR); corporate financial performance (CFP).
Table of Contents
Abstract 2
Introduction. 4
Corporate Social Responsibility. 6
Background & Definitions: 6
CSR Indicators: 7
Corporate financial performance: 8
Empirical Researches on the Relationship between CSR &CFP: 8
Empirical Research On the relationship between Social Responsible Investments’ and Financial Performance: 16
CSR trend: 17
Conclusion: 19
References: 20


CSR being a global issue require firms to address it properly. It had gained more importance in late 21st century where world is said to be a global village and being socially responsible for the firm has been proved to be an influencing factor that affect the various performance determinants of firms.  One could narrate CSR as a need of time to survive besides seeing it as a tool to have corporate gain by firm i.e. competitive, financial gain, brand image, etc. Academic writer has been putting their great efforts to portray the real meaning of corporate social responsibility from time to time. Addressing the CSR is also a big questions faced by companies. It is generally believed that people are given preference for their good citizenship behavior. Same is the case expected by firms. Firms are trying to indulge in fulfilling the social responsibility as it is sough to have a source of favorable perception. Environment is dynamic, and need of CSR also vary from culture to culture. It creates necessity to define the social behavior of the corporation in the given context. Although researcher had narrated CSR in different perspectives ranging from profit maximization to stakeholders’ fulfillment of social needs, or CSR as contractual obligations, achieving societal equilibrium etc but still there is a lack of consensuses among researchers about CSR and its evolving requirement which made researcher unable to generate universally acknowledged meaning of (CSR) corporate social responsibility of the organizations.

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Researchers had revealed the causal effects of CSR activities on the various performance indicators associated with the corporation. Since 1950, when discussion started on this issue, it had made corporation realize its importance to attain business objectives though it should not be a business tool. Studies have proved the positive influence of being socially responsible on the financial performance of the companies (Cochran & Wood, 1984; Waddock & Graves, 1997; Spicer, 1978). At the same time, few of researchers had acknowledged the negative association (Aupperle et al., 1985; Wright & Ferris, 1997; Vance, 1975). This ambiguity does not end here. Researchers had reported neutral results (McGuire et al., 1988 ; Teoh & Shiu, 1990; McWilliams & Siegel, 2000; Orlitzky et al., 2003) were of different view. They reported neutral results. Studying the relation with moderation and mediation of certain variables strengthen this relation. More specifically it turns to be a virtuous cycle where by causation cannot be specifically assigned in a single direction between CFP and CSR (Surroca, Tribo & Waddock, 2010). It has been found that reputation of the firm and trust plays their central role in determining the strength of association between CSR and CFR. Additionally there exist issues with measuring CSR and CFR. Efforts put by researchers in this regard had helped academicians and managers to take careful decision. This has added benefits to the welfare of the society which is the demand and need of time.
This paper is an effort to summarize the vast litterateur on CSR and its impact on the corporate performance. At first, definition of CSR will be presented given by researchers. After that CSR indicator, financial performance, and finally relationship between CSR and CFP will be discussed presented by numerous researchers.

Corporate Social Responsibility

Background & Definitions:

Corporate social responsibility represents the concern of the company towards its society. Bowen (as cited in Nazari, Emami, Soltani, & Khanifar, 2012) presented that the concept of (CSR)corporate social responsibility puts emphasis on that businesses subsist at the gratification of society and their behavior;  business operation procedure must be following the guidelines lay down by society. Friedman (1970) squabbled that it was  the role specific functioning of institutions in society which determines the wellness and proper functioning of the society. Wood (1991) presented 3 points in order to encapsulate social responsibility concept linked with business organization. He stated that being a social institution, responsible utilization of power is the prime obligation of the organization; businesses need to be responsible for their actions that generate outcomes affecting society and managers being a moral agent of society are obliged to apply prudence in their decision making.
However, performing CSR activities with the intention as being society member and not because of as bound by Laws or personal gains is the real premise of CSR (McWilliams & Siegel, 2001).  Friedman’s (1970) expressed owner profit maximization as company sole social responsibility. It has been described as another managerial responsibility that has aroused form the progression of capitalism approaches across globes Carroll (1979). By the inability of the firm, Firm value and power may be declined to balance social responsibility with its social power (Davis, 1975).
Another view depicts CSR as a contractual obligation towards society as a whole by firm. One of the reasoning of this view is that firms play its role in society by using the prevailing resources (Natural, Human etc) and perform function to achieve its objectives just because of society had permitted firms to do so. Hence there are certain things, which society expects in return. Here, it come the social responsibility of the firm. This could be reviewed as implicit social contracts of the society with the firm i.e. claim on firm resources in exchange for the right to take advantage of societal resources in the production process. Scholars consider firms as a social institution rather private (Freeman, 1984; Lodge, 1977).
As a whole CSR can be narrated as company activities, which tend to meet the expectation of either Society or stakeholders. Expectations also vary depending upon the sector, industry and country in which companies are operating. However, researcher had come up with certain indicators that define the social responsibility of the corporation. It had helped in squeezing the vast field into understandable and comprehensive form of CSR. One could overview corporations on these indicators to assess its social performance.

CSR Indicators:  

Some concepts linked with social responsibility are described here. Corporate philanthropy; performing more than routine activities to craft its momentous impact on society and its surrounding (Mullen, 1997), social disclosure; making aware their stakeholders about steps taken for the betterment of society (Lerner & Fryxell, 1988), company environmental record; initiatives taken by company by specially considering the environmental issues like water contamination and others pollution (Mullen,1997), Work force diversity; firms tend to encourage women and minorities by letting them as a part of management control and by discouraging partiality (Mullen, 1997), Financial Health and Tendency to Grow; larger and financial sound firms having huge resources play their more active role towards social activities in comparison with small firms having fewer resources (Stanwick & Stanwick, 1998). Involvement in community; participation in the social wellbeing of the community members by considering their old age benefits- volunteering opportunities and employee’s learning & training programs (Fombrun, 1998). However, there could be many ways to express CSR, but it could be narrated as they appear as a fundamental guideline that helps in understanding the ideology of corporate social responsibility.

Corporate financial performance:

Researcher has been using different factors that impact on the corporate performance. Reason could be the ultimate objective of the firm is its financial performance i.e. company is working in the best interest of its owner. So it makes very important for business managers to identify various factors that directly or indirectly influence the firm financial performance. There is no single generally accepted tool to assess the financial performance because of different perception and theoretical proposition of financial matters that are of having their own importance to certain individuals, Owners, management etc. Hence indicators of financial performance vary from research to research conducted across the globe depending upon the particular purpose. Besides this fact, there is certain most common accounting and market based measure of financial performance. Each has its own significance. At the same time using of different measures made it difficult for the researcher to compare and assess the previous studies.

Empirical Researches on the Relationship between CSR &CFP:

Association between CSR and CFP has long been considered as an important for the couple of decades. Aldag and Bartol (1978) were the first to create influencing review in this regard. It is continually being assessed across the globe up till now. Meta analysis by the researcher is the example of steering effort which they are putting to reveal the generally acceptable link between CSR and CFP. Several studies had been carried out on CSR activities in past several decades. Berns et al.(2009) documented that Corporate social responsibility can amplify access to different financing sources which is consistent with O, Roukre (2002) shareholder activism theory which express the influence of CSR activities in investments decision of shareholder. CSR can be categorized into different components: ethical, legal and economic as provided by the framework of Schwartz and Carroll (2003). Most important component is economic in view of financial economist that is financial consequences of corporate social responsible activities for profit oriented organizations.
CSR had been widely used as a determining factor that help companies to achieve their financial or others short and long term objectives directly or indirectly. Further CSR activities had an impact on Brand image, Customers behavior and loyalty enhances ability of the firm to penetrate in new market. Companies indented to build their brand image also perform CSR activities intentionally. CSR brings good name to the company that influences its stakeholders to take decisions in favor of companies.
Ambec et al (2008) presented that companies can enhance its financial performances by going through CSR activities without increasing expanses. They pointed out that although CSR activities have certain costs but cost reduction linked with CSR such as stakeholder relationship development and risk management tend to improve corporate social performance by improved relations with stakeholders which in further alleviate risk. Simpson and choler (2002) introduced a managerial optimistic hypothesis, which express that in case of high corporate financial performance managers decline business expenditure on corporate social responsibility, and when corporate financial performance is low, managers tend to focus more on CSR activities to distract attention by spending more on CSR activities.
Companies had started using CSR to gain favorable market perception since CSR has recognized as a tool to differentiate from others. Ultimately this differentiation helps companies to generate favorable returns in terms of financial performance. To empirically test the social responsibility of the firm, it had been difficult for the researcher to assess its impact on financial standing. It was because of unavailability of adequate scaling/ measuring tool.
Economist Intelligence Unit (EIU), 2008 (as cited in Robins, R., 2011) expressed that equivalent to CSR is just another concept which is corporate citizenship. EIU study reveals that the survey‘s respondents (74 %) were of the view that corporate citizenship has the influencing power to boost the financial performance. How we specify CSR is the first task faced by the researcher to deal issue related to analyzing the relationship between CSR and CFR.
However, there need some measures of CSR and CFR to evaluate the relationship between them.  Researcher had adopted a variety of them. One of the measures of CSR is Kinder, Lydenberg, and Domini (KLD) generated by rating company. It follows the company content analysis approach. By using several dimensions/ indicators of CSR, KLD then come with up total measure that represents corporate social responsibility of the company. Researcher had quite a times had used this approach (Fauzi, Mahoney & Rahman, 2007; Waddock & Graves, 1997; yang et al., 2010). Others measure of CSR includes fortune reputation survey, Toxin release report (TRI index) and corporate philanthropy. TRI is entirely a self-generated. According to Griffen and Mohan (1997) TRI and corporate philanthropy are a type of quantitative determinant of CSR as they speak about the action of the firms in the past. Carrol (1991) and Spencer and tailor (1987) has used fortune reputation survey. All of these measures has their own limitations and advantages (Griffen& Mohan, 1997). Griffen and Mohan (1997) have used all these measure in their single study. They combined the results of individual measures to generate a single score relating to a particular company. They are of the view that by this individual limitation will be removed and overall score will represent closer outlook of company corporate social responsibility rating.
Previous studies have been using accounting measures and market measure to assess the financial performance. Accounting measures are characterized by the firm past historical data. Widely used accounting measures are some of the profitability ratio i.e. Return on equity and Return on asset. Wingard, H. (2001) narrates profitability as the efficiency with which management exploit total assets for earning superior returns.  Accounting measure had been used by researcher widely (Cochran & Wood, 1984; Waddock & Graves, 1997). These measures are being discussed as having biased and can be manipulated by policies, managerial actions and discrepancy of accounting procedures (Hillman & Keim, 2001). As result researcher intent to use market measure (Vance, 1975). They prescribe market measure as having forward looking standpoint that primarily focuses on the performance of the market. Additionally they are less vulnerable to accounting procedures and managerial manipulations and talks about the investor’s perception and assessment of future earnings of the corporation. Tobin’s q is used by Surroca, Tribo and Waddock (2010) to quantify CFP on the ground that it had the potential to capture the long-term investments’ value. He used Tobin’s q by using formula i.e. Summation of total equity value, long term debt book value and book value net current liabilities of the firm divided by inventories, plant & machinery book value . Stock market value is the value that appeared in the open market. Return measured by the change in the market price of stock is another widely adopted tool to assess the financial performance of the organization. Thereby impact of CSR on financial performance can be evaluated by accounting measure or market measure of financial performance or both. It is noticed that the Relationship between CFP and CSR also vary because of measure adopted.
Empirical studies have been generating varied results in terms of positive negative association between corporate social responsibility and company financial performance over a period of time. There could be categorized into divisions based on results of studies and theoretical underpinning of CSR impact on financial performance. Some researchers have found a negative association between two variables where financial performance was measured by excess return (Wright & Ferris,1997), earning/share (EPS) forecasts (Cordeiro & Sarkis, 1997), stock price changes (Vance, 1975). They support the view of Friedman who squabble that managements tend to act as an agent as elected by the stockholders of the company to work for the best interest of them, so to use company resources only for increasing the wealth of owners (shareholders) is the ultimate corporate responsibility of the management (business). Allocating the resources other than this purpose would exert undesirable influence on company performance (Impacts corporate social responsibility activities on company, 2012).
Second division can be classified as those follow the freeman (1984) who talks about company concern towards not only shareholders but also on others stakeholders that the company can induce stakeholders in their decision making. He and followers were of the view that by doing this company can increases the value of its shareholder wealth value by cost saving, building the firm’s reputation in industry, involving government by discussing future potential actions with it etc. Shane and Spicer (1983) ascertained a positive association between financial performances following to CSR. McGuire et al. (1988) for the first time separated the economic performance into subsequent, concurrent and past. Corporate reputation rating provided by Fortune magazine was taken into consideration to determine the affiliation between economic performance and perceived corporate social responsibility. It was found that corporate social responsibility was more strongly linked with preceding firm’s economic performance as measured with both accounting and stock market based returns.
Positive association of CSR with corporate financial performance can be linked with social impact hypothesis which justify that fulfilling the needs of stakeholders other than stockholder generate a positive impression towards corporate financial performance.
Research following the instrumental theory supports the ideology that better management practices enhances favorable positive relationship with external key stakeholders that output augmented CFP (Waddock & Graves, 1997a; Freeman, 1984). It is rooted in resource view of firms which deem CSR as an intangible asset that influence firms to use its resources effectively thereby generating ultimate positive effect on CFP (Hillman & Keim, 2001; Orlitzky, Schmidt & Rynes, 2003).
Studies that have taking into account the Financial/Accounting measure of CFP have produced mixed results. Cochran and Wood (1984) documented positive relation. Aupperle, Carroll, and Hatfield (1985) identified insignificant association between ROA (risk adjusted) and CSP while contrary to it, Waddock and Graves (1997) had acknowledged significant direct between CSP index and CFP measures (ROA) in a subsequent year. No matter what measures were used, results are diverse. When stock market based returns were used by Vance (1975), it acquiesced a negative CFP /CSP affiliation. Meta analysis research directed by Orlitzky et al. (2003) by combining 52 studies related to CSR and Corporate financial performance revealed that investing in fulfilling the corporate social responsibility yield favorable results in terms of corporate financial performance. They concluded that this relationship is bidirectional in nature rather unidirectional.
Baron, D.P., Harjoto, A.M, & Jo, H. (as cited in Robins, R., 2011) worked on CSR and its association to different industries. They concluded that better corporate financial performance is linked with greater corporate social performance (CSP) for consumer industries and vice versa for industrial industries. They were of the view that this might be because of readily available rewards in consumer industries for being a socially responsible. They were also uncertain about the direction of causation between CSR and CFP. Besides a lot of research in this regards, this question requires a deeper understanding to be answered.
Moreover, it has also been found that there is no general relationship between these two variables because of mismatch of firm general situation and it’s linked with society, so not any such direct causal relationship (Mcwilliam, A. & Siegel, D., 2000). Halme, M. and Laurila, J. (2009) elaborated the issue of inconsistent relationship between corporate financial performance and CSR by giving reasoning that the inconsistencies is because of eradicating the specific industry variables from the study of CSR and CFP. Wingard, H. (2001) also had pointed that inconsistencies is because of not having control variable and sufficient availability of dependent variable that could help in expressing their relationship well if applied. There are other variables that could moderate the association between economic and environment performances like industry growth (Russo & Fouts, 1997).
However, previous work of Sauer (1997) articulated the indifference of performances between investment in socially responsible activities and conventional investments. Belkaoui (1976) studied the disclosure of information about pollution control as a social responsibility and financial performance. His work reported a positive influence of disclosure of pollution control measures on economic & financial performances. Cochran and Wood (1984) tested the association of CSR and performance of firm’s by using CSR grading developed by Moskowitz (1972). He controlled for industry classification and found a weak link between economic performance and CSR activities. At the same time Mills and Gardner (1984) reported in their study that disclosing the expenditures details of social responsibility is more adoptable by firms when favorable economic performance is shown by company financial statements. Surroca, Tribo and Waddock, S. (2010) had studied the impact of CSR activities on financial performance of the firm with the mediation effect of intangible resources held by the firm. They reported no relationship between corporate responsibility (CSR) and financial performance but with the mediation effect of intangible resources, there was slightly an indirect relationship between these variables.
Meta-analysis approaches adopted by Orlitzky, et al. (2003) and Allouche and Laroche (2005) are quite important in this field. Orlitzky, et al. (2003) study catering 30 years of data revealed a positive association between CFP and CSR. Their analysis yielded that reputation plays its mediating role between two variables which was found to have a strong influence on their association. It reveals that looking at the relationship with some mediator can provide a better picture of the link between stated variables. Uncertainties and ambiguous findings are ongoing. Orlitzky, et al. (2003) and Griffen and Mahon (1997) had presented a table in their studies that display the studies conducted in the past on CSR relationship with CFR and their results. Here, is presented table produced by Seo, Young-Min and Chongwoo (2010) which provide the summary of studies conducted in the past, relationship reported and measures used to assess CFP and CSR.
Authors Sign CSR Measure CFP Measure
Bragdon & Marlin (1972) + CEP index ROE, ROC,EPS growth,
Fogler & Nutt (1975) Neutral CEP index P/E ratio
Sturdivant & Ginter (1977) + Moskowitz reputation index EPS growth
Alexander a& Buchholz (1978) + Reputation ratings Return on security (Market)
Spicer (1978) + CEP index ROE
Cochran & Wood (1984) + Moskowitz reputation index Return (Abnormal)
Aupperle et al., (1985) - Carroll's (1979) CSR Aupperle et al., (1985)
Conine & Madden (1987) + firm reputation survey Perceptual Survey measures
McGuire et al. (1988) Mixed Fortune index sales growth, ROA,asset
Fombrun & Shanley (1990) Mixed Fortune index ROIC, market-to-book ratio
Teoh & Shiu (1990) Mixed CSR disclosure survey questionnaire of investors (Institutional)
Blackburn et al. (1994) + CEP index ROA, EPS, abnormal return,
Waddock & Graves (1997) + KLD index ROA, return on sales, ROE
Berman et al. (1999) + KLD index ROA
McWilliams & Siegel (2000) Neutral KLD index ROA
Orlitzky et al. (2003) Mixed KLD index ROA,ROE, P/E ratio
Akpinar et al. (2008) + KLD index Tobin's Q, Stock return,
Lev et al. (2008) + Charitable contributions Sales growth
Source: Produced by Jong-Seo. Young-Min and Chongwoo (2010).

Empirical Research On the relationship between Social Responsible Investments’ and Financial Performance:

Social responsible investment practices come under the social responsibility of the entities and individual. In analyzing the (SRI) socially responsible investment, researcher had been taking the help of theoretical link between financial and social performance. Scholars had spent a lot of time in determining that whether the investments that are socially responsible generate more favorable return than traditional investments or not.
By definition, SRI is a social investment in a firm that is named because of the business nature that the company conducts. Example includes avoiding investments in companies that are engaged in production of or selling of substance addictive in nature (tobacco alcohol, and gambling etc). It also represents investments in companies that are environment protective and focus on alternating energy. These investments can be made either through individual companies or by exchange-traded fund or mutual funds that act as socially responsible. Investing in Socially Responsible Assets has been reached $3 Trillion (Social investment forum, 2012) while in 2005, it was 2.3 trillion (Social investment forum, 2005).
Increasing pollution concerns has influenced us to focus on encouraging companies that are consistently following strict environment safety policy measures. Trend of Investing in such companies has increasing (Social investment forum, 2012). This is because of reason that socially responsible investments generate more returns than traditional ones or it could be general concern towards environmental issues. This could be narrated as acting responsibly at the individual level by getting attached with the corporation as investors. Van de Velde, E., Vermeir, W &Corten, F. (2005) performed the study by taking into consideration screened portfolio (social Responsible) and traditional investments. They reported about portfolio of companies that were having less sustainability performed below than the market almost between 19 & 34 base point (based monthly). Their analysis revealed that portfolio having high sustainability tend to have high capital exposure and high market hence generate the need of careful construction of a portfolio. However, there also exists a difference of opinions. Studies of Diltz, 1995; Sauer, 1997; Bauer, Koedijk and Otten, 2005 and Kneader et al., 2001 (as cited in Van de Velde, E., Vermeir, W &Corten, F., 2005, p. 47) documented that there is no significant difference in performance of (SRI) social responsible investments in comparison with traditional investments. They have used equity portfolios (screened) and international mutual fund (ethical). This is a long discussion where researcher are of the view that litterateur is not having definitive conclusion.

CSR trend:

Corporate social responsibility issue had been come up with most priority these days while the world has now become a global village. Disclosure of information, public policies, pollution control measures, ethical considerations are few of the issues associated with corporate social responsibilities (CSR). Big corporation in the world is now inclined to lead stakeholders aware about their social responsibility. Trends are changing. This could be observed by the fact that more than 400 professionals linked with corporate social responsibility get together at CSR SUMMIT 2010 in Hong Kong in order to exchange important CSR issues and to share related strategy in Asia-Pacific region. Responsible Competitiveness Index (RCI) given by business school (Brazilian), Fundacao Dom Cabral and the British non for profit firm, Accountability list countries on the basis of countries efforts to promote socially responsible corporate business practices. List covers countries having 96 % of global GDP (Zadek & MacGillivray, 2007). Countries Sweden, Denmark, Finland, Iceland, United Kingdom, Norway, New Zealand, Ireland, Australia, Canada is top 10 on the list. Countries are here described with their rank order Sweden being at the top. This is because of emergence of CSR as a global issue and need of time. Big Companies in all industries had made them involved in such activities. They had understood the importance of it. It has become a way to express their activities through content of web. Following is the graph and table which show the trend of CSR in past 15 years taken from the study of Cecil, L. (2010) and 2nd shows the top 10 industries based on their CSR reporting
 Source: Cecil, L. (2010). Corporate Social Responsibility Reporting in the United States.
Source: Cecil, L. (2010). Corporate Social Responsibility Reporting in the United States.


Corporate social responsibility is the need of the time and its meaning and scope vary from time to time, culture to culture, organization to the organization and country to country. CSR has been considered as a determining factor in crating brand value, bring loyalty to customer, employee retention etc which is according to researcher ultimately influence the financial performance of the firm. There is a cloud of studies that navigate the connection between CSR and CFP in terms of positive, negative & neutral. However, Positive influence of CSR on financial performance is noticed more of times than negative. Moreover, it is believed by many researchers that it is hard to establish direct causality relationship between them. They view that with the moderation and mediation of different variables (intangible resources, brand image, etc), this relationship is more clear and generate positive significant results. As there exist no general acceptable definition of CSR, also no specific measure to quantify it. Difference in measures adopted by researcher has produced varied results. Also, there need to adopt some correction measures on already developed measures. Although there is increasing trend in investing in socially responsible investments, but it need to be tested whether it is a general concern social concern towards it or it is because of the above performance of such investments over traditional investments as some of the empirical studies had revealed that sustainable investments hinder traditional ones.


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