Corporate social responsibility and financial performance relationship: a review of measurement approaches

Abstract

The relationship between corporate social responsibility (CSR) and corporate financial performance (CFP) has been subject to extensive empirical enquiry. Yet the body of evidence that has accumulated about the nature of the relationship is equivocal. A commonly identified reason for the diverse and contradictory results is measurement issues pertaining to both concepts of interest. This article aims to review alternative operationalisations and measurement approaches for the CSR and CFP concepts that have been deployed in empirical literature concerned with the CSR-CFP relationship. Several findings emanate from our study. First, CSR operationalisations in empirical literature range from multidimensional to one-dimensional. Second, CSR measurement approaches include reputation indices, content analyses, questionnaire-based surveys and one-dimensional measures, whereas CFP measurement approaches include accounting-based measures, market-based measures and combined measures. Third, no CSR measurement approach is without drawbacks. In addition to approach specific drawbacks, two problems inherent in most approaches are researcher subjectivity and selection bias that may influence the nature of CSR-CFP relationship detected in empirical literature. Finally, potential pathways to remedy these drawbacks are suggested.

The (in)congruence of measures of corporate social responsibility performance and stakeholder measures of corporate social responsibility reputation

“…A more recent study by Galant and Cadez (2017) (King & McDonnell, 2012;Melo & Garrido-Morgado, 2012;Saeidi et al, 2015). They provide binary ratings indicating firms' strengths and weaknesses across seven different dimensions-community, environment, diversity, employee relations, corporate governance, product, and human rights (King & McDonnell, 2012 (Brammer & Pavelin, 2004) and Korea Economic Justice Institute in South Korea (Oh, Chang, & Martynov, 2011).…”

“…For this second round of analysis, we used a different set of scores from the year 2016 produced by the same 10 measures used in the EFA. The CFA was a critical second step to ensure that the emergent factors obtained in the first round of EFA did not emerge by chance and are not limited to the year 2017.Considering the importance of treating each dimension of CSR (i.e., environmental, social, and governance) separately for measuring CSR performance (seeGalant & Cadez, 2017), we took publicly available indices of each ESG dimension from the universal measures of CSR-CSRHub (Hub), Thomson Reuters (TR), Newsweek (NW) and KLD.The environmental dimension was operationalized as firms' environmental policies, waste management, emissions, and intentions to reduce negative environmental impact(CSRHub, 2018; Newsweek, 2017; TRSNESGRs, 2017). The social dimension measured firms' employment quality, health and safety of workers, human rights,…”

A review of corporate social responsibility in developed and developing nations

“…Classical economists argue that a company's sole responsibility lies to its shareholders alone, on increasing value and profit for the company and for them. Deviations from this theory began when it was realized that increased business output must not occur at the cost of society as a whole (Galant & Cadez, 2017). Emerging theories argued that a company that manages its relationship well with stakeholders in the society will garner more economic success over the years through their influence (Barnett & Salomon, 2012), CSR bolstering shareholder value and securing bottom line profitability (Epstein, Buhovac, & Yuthas, 2015).…”

An Empirical Analysis of Corporate Social Responsibility Effects on Financial Performance for Romanian Listed Companies

“…These divergent results are given by various factors, such as different measurement of the considered variables, namely whether we assess the financial performance using accounting values (Graves and Waddock, 2000;Inoue and Lee, 2011), market values (Kang, Lee and Huh, 2010), or both (Wu and Shen, 2013;Khan et al, 2016), the social performance by secondary or perceptual data, using different methodologies for statistical data analysis, correlations, or control variables (Galant and Cadez, 2017).…”