The Missing Link between Corporate Social Responsibility and Financial Performance: Stakeholder Salience and Identification

Abstract

In this paper, we present a framework for examining the relationship between corporate social responsibility (CSR) and firm financial performance. Ambiguity in empirical studies examining this relationship can be expected given both the ability and motivation of managers to focus their social responsibility initiatives on stakeholders with power, urgency and legitimacy. By considering the ability of stakeholders to reward or punish the firm based on their evaluations of the firm ' s activities, our model reconciles previously disparate findings in the relationship between CSR and corporate financial performance.In considering the actions of a fi rm, different stakeholders can have differing opinions on what it means to be ' socially responsible. ' In her review of the social performance of fi rms, Griffi n (2000) argues that universal measures are inadequate because they fail to take into account the variety of preferences of a range of stakeholders of the fi rm. This is important because stakeholders ' evaluations of the fi rm and its activities impact (among other things) the fi rm ' s share price, its consumer support, the loyalty of its employees and the amount of attention directed at (or against) it by the media. In the ongoing debate about the relationship between corporate social responsibility (CSR) and corporate fi nancial performance (CFP) the potential for stakeholder demands to compete with one another for fi rm attention and prioritization and the consequences of confl icting demands being (or not being) met are rarely considered ( Barnett, 2007 ). Clarifying the link between CSR and CFP is important as managers balance stakeholders ' expectations of the fi rm to be socially responsible against demands for fi rm fi nancial performance ( Bertels and Peloza, 2008 ).We extend the theoretical development of the CSR -CFP relationship by considering the CSR -CFP link across a broad range of stakeholders. Our framework integrates managerial motives with instrumental stakeholder theory ( Jones, 1995 ) to argue that many managers develop social responsibility strategies based on perceived stakeholder priorities. Our model explicitly considers divergent groups of stakeholders and their potentially divergent reactions to the acts of the fi rm, along with the opposing effects of these reactions on fi nancial performance. In the development of a model of CSR that is

Understanding Complexity: the Curvilinear Relationship Between Environmental Performance and Firm Performance

“…Vogel (2005) suggested that the EP-FP relationship depends on the context of the specific issue at hand because specific circumstances would alter the nature of the relationship. For example, the role of good management skills in translating good environmental actions to profits has been highlighted (Schuler and Cording 2006;Peloza and Papania 2008). The indirect impact of the role of industry sector has been highlighted by Lopez-Gamero et al (2009).…”

Effect of Corporate Reputation and Commitment of Business Social Responsibility (BSR) on Performance: Evidence from Manufacturing Sector in Nigeria

“…Previous research on the relationship between BSR and organizational performance found a numerous finding some reveals that positive, others negative and mixed or non-significant relation, those who reveals the positive relation includes (Griffin & Mahon, 1997;Peloza & Papania, 2008;Porter & Vander linde, 1995;Preston & V' Bannon, 1997;Rettab, Brik & Mellahi, 2009& Verschoor, 1998 while those indicate negative includes (Meznar et al, 1994;Vance, 1975& Wright & Ferris, 1997 and lastly, those who indicate mixed result include ( Berman et al, 1999;Cochran & Wood, 1984;Graves & Waddock, 1997;Hillman & Kein, 2001& McGuire, Sundegren, & Schneeweis, 1988. However, as noted earlier we cannot generalize the above finding because all the result comes from USA and Europe as against the developing nation.…”

“…For many years a vast body of knowledge has emerged concerning the association between initiatives and organizational performance (Peloza & Papania, 2008). Despite all this attempt of research it suffers with major limitations.…”

“…But the way in which BSR initiative influences these outcomes remains uncertain. Consequently, a number of researches have argued that the lack of agreement on the relationship between BSR dimension and organizational performances (Hillman & Keim, 2001;Peloza & Papania, 2008;Retab et al, 2009;Waddock & Graves, 1997;Wright & Ferris, 1997), and this points the need for further studies into this relation particularly in developing nation where there are little empirical evidence. In addition, the research is significant; firstly, there is large inequality in the number of studies on social responsibility especially in small firms (local firms).…”

Signaling without Certification: The Critical Role of Civil Society Scrutiny

“…This impact will vary with the extent to which stakeholders expect firms to behave in a socially responsible manner, which varies considerably across countries (e.g., Chapple and Moon, 2005;Doh and Guay, 2006;Matten and Moon, 2008). Firms headquartered in institutional contexts that have greater expectations for socially responsible behavior are held to higher standards (Rowley and Moldoveanu, 2003) and face greater punishments if they fall short (Campbell, 2007;Peloza and Papania, 2008). Thus, firms in such contexts that fail to uphold their commitment to a self-regulatory program's objectives are at greater risk of provoking negative attention.…”