Are Firms that Contribute to Sustainable Development Better Financially?

Abstract

The aim of this study is to analyze the effect exerted by corporate social strategies on (shortterm and long-term) corporate financial performance (CFP). To this end, we use data on firms listed in the Stoxx Europe 600 index and Stoxx Europe Sustainability index from 2007 to 2010. On the sample data, we implement random and fixed effects panel data methodology corrected by heteroskedasticity, serial correlation, and/or cross-sectional dependence. The results obtained show that the implementation of corporate social responsibility (CSR) strategy, the level of economic development of the country and firm size determine CFP. In addition, the investment in research and development influences the return on assets while the company's financial slack affects the Tobin's Q. So, companies that contribute to sustainable development incur higher CFP.

Sustainability Matter and Financial Performance of Companies

“…The inclusion of these variables avoids the misspecification problem that arises from omitting variables that are important determinants of FP [10].…”

“…ROA ratio represents the relative profitability of asset utilization and measures managerial efficiency [10,72,73]. In this way we intend to evaluate the effect of ROA, along with other control conditions, on the relationship between social performance and ROE.…”

“…This lack of consensus is conditioned by a multitude of factors, including the diversity of models used to measure performance [19], the lack of confidence in identifying more than 80 different performance measures in the literature reviewed [20], the variables and definitions used to measure sustainability and financial performance and sample characteristics [10], or the lack of control variables such as size, risk, and the economic sector to which the company belongs [21].…”

Socially Responsible Investment: The Financial Performance of Spanish Equity Pension Plans

“…On the other hand, according to stakeholder theory (Freeman, 1984), pension funds that implement ethical screening in their management strategy for selecting firms' stocks (so-called ethical pension funds) using CSR reports could obtain better financial performance than those pension funds whose purpose is merely to maximize returns while minimizing risk (so-called traditional pension funds), or they may even donate a part of their profit or management fees to social projects (so-called solidarity pension funds). This could be due to the firms in which they invest integrating social responsibility activities in their core business strategy to enable companies to reduce operational costs and risks and, therefore, to achieve better longterm financial performance than their counterparts (Blomgren, 2011;Ioannou & Serafeim, 2012;Martı´-Ballester, Rovira-Val, & Drescher, 2013;Porter & Kramer, 2006;Waddock & Graves, 1997), which is therefore of benefit to pension funds.…”

Sustainable consumption and marketing

“…For most companies, however, the incentive structure of their tactical marketing decisions apparently favours cost reduction over value creation. Even when companies support a long-term value orientation in general terms, a short-term cost orientation tends to prevail whenever concrete actions are required (Ducassy, 2013;Marti, Rovira-Val, & Drescher, 2013;Menzel et al, 2010;Miller, Spivey, & Florance, 2008;Orsato, 2006;Saeidi, Sofiana, Saeidi, Saeidi, & Saaeidi, 2015). A (low construal) cost orientated competitive strategy appears to be incompatible with sustainable (Westkämper, 2008) or environmental performance (Liyin, Hong, & Griffith, 2006).…”