Corporate social responsibility and financial performance: A non-linear and disaggregated approach

Abstract

The present paper examines the relationship between Corporate Social Performance (CSP) and Corporate Financial Performance (CFP), using both accounting-based (Return on Assets and Return on Capital) and market-based (Excess Stock Returns) performance indicators. We use Bloomberg's Environmental Social Governance (ESG) Disclosure score covering the S&P500 firms in the period 2007-2011 which allows for the examination of both linear and nonlinear relationships to be considered. The results of the linear model suggest that there is a significant negative relationship between CSP and Return on Capital. However, the non linear models provide evidence of a U-shaped relationship between CSP and the accountingbased measures of CFP, suggesting that in the longer run CSP effects are positive. Most prominent among our results is that fact that by disentangling the ESG Disclosure score into its environmental, social and governance sub-components, we find that a U-shaped relationship exists only between the governance sub-component and CFP. A straightforward implication of our findings suggests that in order for CSR to serve the interests of the shareholders, a long-run planning and considerable resources should be dedicated at this direction, given that CSR expenditure pays off only after a threshold of CSP has been reached. Furthermore, the fact that governance is the key driver affecting the CSP-CFP relationship suggests that CSR investments should be directed to this component.

Corporate Social Responsibility, Ownership Structure, and Firm Value: Evidence from Korea

“…As independent variables, CSR has been considered a concept encompassing the environment, employee, community, and shareholder. The environmental, social, and governance (ESG) is the key variable to measure CSR, which is approximated by the Bloomberg's ESG disclosure score [60]. The ESG refers to the combination of the following three components: environmental disclosure scores, social disclosure scores, and governance disclosure scores.…”

Corporate Responsibility and ROA: Evidence from the Italian Stock Exchange

“…An important contribution to the literature was given by Nollet et al (2016) Bollazzi et al (2017) shown that the ROE of the companies responsible from an environmental perspective is not significantly different from the ROE of the companies not responsible from the same point of view. Instead the companies which prepare a sustainability report seem to have a greater underpricing the first day of listing, such that it seems that the market recognizes and rewards the ESG Corporate Responsibility.…”

Linkage between company scores and stock returns

“…al, 2010;Aras, 2015;McGuire et. al, 1988;Pava and Krausz, 1996;Ruf et al, 2001;and Callan and Thomas, 2009) and some of them stated that these relations are negative (Bhagat and Bolton, 2008;Aras, 2015;and Nollet et. al, 2016).…”

“…In the company score literature part, the studies, which are investigated the relation between company performances and corporate social responsibility, corporate governance, distinguish themselves from other studies according to their data used, method implemented. As a company performance measure, some studies used only accountingbased measures (Ammann, Oesch, & Schmid, 2011;Bhagat & Bolton, 2008;Brown & Caylor, 2009;Renders, Gaeremynck, & Sercu, 2010;Core, Guay, Tjomme, & Rusticus, 2006;Aras, 2015;Ruf, Muralidhar, Brown, Janney, & Paul, 2001;& Callan & Thomas, 2009) & some of them used both accounting-& stock-market-based measures (McGuire, Sundgren, & Schneeweis, 1988;Nollet, Filis, & Mitrokostas, 2016;& Pava & Krausz, 1996). The Table 1, which is showed in Appendix 1, gives summary of some articles, which focused on company scores.…”