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Considering limited evidence of a lagged market reaction to bad environmental news in the UK context, Lorraine, Colliso, and Power (2004) provided descriptive statistics on whether the favourable or adverse environmental news influenced company share prices for the firms in the sample. The results indicated that there is a stock market response to such news especially for details on fines after news is published. A cross-sectional analysis indicated that the share price response is mainly a function of the relative fine imposed on the firm. Other explanatory variables such as environmental performance news or sector membership were unsuccessful in explaining variations in the market responses.
Al-Tuwaijri, Christensen, and Hughes II (2004), investigated the relations among economic performance, environmental performance, and environmental disclosure after explicitly considering that these three corporate functions are jointly determined. They found that allowing for the potential endogeneity associated with specifying the three corporate functions—economic performance, environmental performance, and environmental disclosure, that good environmental performance is significantly associated with good economic performance,. The significantly positive relation observed between environmental performance and economic performance suggests that managers should change their strategic outlook regarding a firm‘s environmental performance, from fixating on the dead weight costs of ex post regulatory compliance, to focusing on the ex-ante opportunity costs represented by environmental pollution. The study also showed that good environmental performers disclose (within the context of our definition of environmental disclosure) more pollution-related environmental information than do poor performers.
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perspectives, yet the evidence continues to be conflicting (Hong, Li, & Minor, 2015). Extant studies on corporate social responsibility and corporate financial performance can be divided into three:
some studies have found supporting evidence of CSR as a potential agency cost, others have also found a positive relationship between CSR activities and firm financial performance. Still yet others found insignificant relationship between CSR and firm performance. The reason is not far from lack of a particular framework and method for studying social responsibility. Most often, differences arises from observation periods, companies included in the sample, measures of corporate performance and methodological approaches adopted for the empirical analysis, failure to control for the company economic activity (Simionescu & Gherghina, 2014; Becchetti, Di Giacomo, &
Pinnacchio, 2005). Following the same line of argument, Tsoutsoura (2004) specifically noted that in many cases subjective indicators are used in studies involving social responsibility and firm performance making it unclear what these indicators measure. Below are some of the extant studies.
In a more recent study, Hasan, Kobeissi, Liu, and Wang (2016) sheded light on how, that is, the underlying mechanisms through which CSR leads to greater shareholder value creation, by investigating on the mediating role of total factor productivity (TFP) in the CSP-CFP relationship.
TFP captured the productive efficiency determined by how a firm utilizes inputs to produce output.
By using a comprehensive longitudinal dataset of all publicly traded U.S. manufacturing firms from 1992 to 2009, the study documented a significant positive effect of corporate social performance on Tobin‘s Q. It showed significant and positive relationship between CSP and TFP. More importantly, the mediation analysis reveals that TFP significantly mediates the CSP-CFP relationship. The study suggested organizational risk moderates the treatment effect of CSP on TFP. To be specific, analysis revealed that the effect of CSR engagement to enhance firm productive efficiency is stronger for firms with higher levels of organizational risk. Thus CSP can affect productivity and help in development of intangible assets in multiple ways: enable firms to forge strong relationships with key stakeholders, facilitate the development of productive innovations, organizational legitimacy,
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better access to resources, and human capital, all of which help firms to efficiently utilize the assets, obtain competitive advantages over rivals and create shareholder value.
In a study of the relationship between corporate social responsibility and firm value using a sample of U.S. companies quoted on the New York Stock Exchange (NYSE) and NASDAQ Stock Market, Gherghina, Vintilă, and Dobrescu (2015), provided analytical evidence that corporate social responsibility positively influences firm value. This evidence is consistent with the instrumental stakeholder theory view, since the companies involved in corporate social responsibility undertakings use in a more effective way their resources in order to better satisfy stakeholders‘
needs. CSR activities can add value to the firm if they are wisely managed and implemented, as well as sufficiently disclosed and reported. Furthermore, the image on the market for a company with high social involvement and good disclosure of corporate social responsibility undertakings is reflected in the rise of its number of customers and sales. It has been demonstrated in the study that the annual growth of sales leads to an increase in firm value. The study highlighted that firm size measured by the annual average number of employees has a negative effect on firm value. Thus having many employees is leading to an increase in the labour cost and from a certain level restrict the usage of resources available to use for the achievement of an increase in firm value.
In a study to examine the relationship between corporate social responsibility and company performance using 500 UK firms, Adeneye and Ahmed (2015) documented that there is a significant positive relationship between MBV and corporate social responsibility. There is positive insignificant relationship between size and corporate social responsibility. There is a significant positive relationship between MBV and corporate social responsibility. Also there is significant positive relationship between CSR, ROCE, SIZE and MBV.
Xie (2015) examined the relationship between Corporate Social Responsibility and Firm Performance using KLD scores as a proxy for CSR and financial statement variables to measure firm
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performance. The study documented that all the independent variables expect for ROA ratio and R &
D level are statistically significant which provides strong evidences that those independent variables are related with CSR levels. Specifically, while Firms‘ leverage levels, book-to-market ratio, tangibility, and ROA ratio have negative significant effect on CSR; Tobin‘s Q and firm size have positive significant effects on CSR. Since these independent variables that have negative significant effect of CSR are financial statement variables, the study implied that that if a firm put more time into business activities, it may need to sacrifice the time put on social responsibility. Another reasonable implication of the study is that a firm target on maxing profit will somehow neglect social responsibilities.
Vujicic (2015) focused on examining the interactions between corporate social responsibility and financial performance in the form of stock returns for a sample of US firms over at two year period.
The work used a set of disaggregated social responsibility indicators for environment, community and employment, and compares the results to that of an overall corporate social responsibility score.
The study provided evidence that firms with higher social responsibility scores tend to achieve lower stock returns, in both the case of an aggregate rating, and individually examined indicators. In particular, it was found that the community indicator has a significant negative impact on return more often that the other two factors. Furthermore, neither the addition of the firm characteristic control factors, nor industry effects were able to explain the decreased returns resulting from the higher CSR scores. Therefore the paper concluded that expenditure on corporate social responsibility in business strategies is in fact destructive to the profits of the firm and shareholder value.
Marfo, Chen, Xuhua, Antwi, and Yiranbon (2015) analyzed the relationship between corporate social responsibility (CSR) and Company‘s profitability. The study indicated that, the negative relationship exists between companies‘ performance standards with profit after tax (PAT) and corporate social responsibility investments (CSRI) by the companies. This suggested that, the more the profit earned
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by the companies in Ghana, the less they contribute resources into corporate social responsibility programmes.
Given a recent legislative mandate forcing corporations to spend at least 2% of their net income on CSR activities in India, Manchiraju and Rajgopal (2015) investigated whether corporate social responsibility (CSR) create shareholder value using firms quoted on their National Stock Exchange (NSE). The study showed that the law caused a significant drop in the stock price of firms forced to spend money on CSR, consistent with the idea that firms voluntarily choose CSR levels to maximize firm value. Firms with greater agency costs and political connections benefit from mandatory CSR. It was discovered that find that compared to firms unaffected by the mandatory rule, firms affected by the mandatory CSR rule experience a greater decline in Tobin‘s q ratio in the years when the likelihood of the passage of mandatory CSR rule increased. Overall, our evidence suggested that mandatory CSR activities can impose social burdens on business activities at the expense of shareholders.
According to study by Chen and Lee (2015), higher involvement in CSR is correlated with higher firm value, and higher firm value then gives rise to better involvement in CSR. The study showed that CSR holds a two-way influence toward firm value, meaning that the effect CSR has on a firm is correlated with the firm‘s value. A firm with relatively low value can benefit immensely from emphasizing social responsibility, whereas when a firm makes an effort to enhance its value, it will not necessarily enhance engagement in CSR at the same time, owing to a crowding out effect.
Examining the link between Corporate Social Responsibility disclosures and firm value in Vietnam, Nguyen, et al (2015) discovered that social responsibility disclosures are associated with following year‘s firm value. Implying that this year‘s Corporate Social Responsibility disclosures might have affected firm value next year. Specifically, the relationship between environmental information provision and following year‘s firm value was positive, while that between employee disclosures and
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firm value was negative. The results showed a positive sign for Vietnamese firms that take on environmental responsibilities.
Simionescu and Gherghina (2014) analyzed companies quoted on the Bucharest Stock Exchange in Romania to provide evidence on the impact of corporate social responsibility on corporate performance. The study considered control variables that cover firm‘s characteristics including size, indebtedness, as well as the company‘s tenure and show that there is significant positive relationship between CSR and EPS with cross-section. By estimating fixed‐effects panel data regression models, the positive relationship between CSR and EPS was reinforced. By employing panel data regression models without cross‐section effects, there is a negative relationship between CSR and ROS.
In a study on the effect of corporate social responsibility on organisation performance of banking industry in Kenya, Okwemba, Chitiavi, Egessa, Douglas, and Musiega (2014) introduced customers retention as measure of organisation performance, two intervening variables among other independent variables. The study revealed that there is a significant positive relationship between organization performance and philanthropic activities. There is an insignificant positive relationship between organization performance and environmental activities. Ethical activities has significant positive relationship with organization performance. The intervening variables: government policy and priority both has significant impact on customer retention.
Anderson, Hyun, and Warsame (2014) examined the interrelations between Corporate Social Responsibility (CSR, Earnings Management (EM), and Firm Performance (FP) while taking into consideration Corporate Governance (CG) and Management Compensation (MC) in the contexts of pre- and post-SOX periods 1992 to 2001 and 2002-2009.The study employed rigorous panel vector auto regressive (PVAR) procedures to assess the complex linkages between all these variables and to investigate causal directions between all pairs of the considered variables. The study provided evidence that CSR had a positive influence on EM in the pre-SOX, suggesting that managers
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invested in CSR activities from an opportunistic perspective during this period. However, during the post-SOX era, CSR has no impact on EM which is suggestive that CSR was likely to be more opportunistic in the pre-SOX era and more aligned with corporate objectives in the post-SOX era.
There is no relation between CSR and FP pre-SOX, but there are bi-directional relations between them during the post-SOX period: a positive influence of CSR on FP and a negative influence of FP on CSR, suggesting more effective and less opportunistic use of CSR during post-SOX. FP positively leads EM in both pre- and post-SOX periods, consistent with managers using EM to meet expectations.
In a study on the impact of Corporate Social Responsibility on bank profitability, Folajin, Ibitoye, and Dunsin (2014) using ordinary least square (OLS) model of regression documented that Corporate Social Responsibility spending has short term inverse effect on Net Profit but in the long run it will provide better returns.
In a study by Mukhtaruddin, Relasari, Soebyakto, Irham, and Abukosim (2014), on the influence of the earning management on the firm‘s value by looking into corporate social responsibility as an intervening variable. The result showed that earning management has a positive but insignificant influence on corporate social responsibility disclosure, corporate social responsibility disclosure has a positive and significant influence on firm‘s value, and earning management has a negative and insignificant influence on firm‘s value.
Examining the impact of Corporate Social Responsibility on Shareholders wealth and Firms Financial Performance based on selected Pakistan companies. Mujahid and Abdullah (2014) provided empirical evidence that there is significant positive relationship between Corporate Social Responsibility and firm‘s financial performance and shareholders wealth. All the Corporate Social Responsibility firms that are included in the sample outperform the Non Corporate Social Responsibility firms in terms of their financial Performance.
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Contrary to the above evidence and using the same Pakistan companies, Siddiq and Javed (2014) analysed the impact of CSR on organisational performance and documented that CSR has no significant effect on financial performance of firms. Specifically, the study showed that CSR has insignificant positive impact on both financial Performance indicators. PSR influences the performance indicators negatively yet it is not significant.
In an empirical investigation of corporate social responsibility and profitability of Nigerian banks, Odetayo, Adeyemi, and Sajuyigbe (2014) posited that there is a significant relationship between expenditure on corporate social responsibility and profitability. This study established that corporate organizations need support of society in order for them to grow and prosper.
Su, Peng, Tan, and Cheung (2014) explored how different levels of market development and market information diffusion moderate the positive signal effect of CSR on financial performance. The study revealed that there is a positive relationship between CSR practices and financial performance. This positive relationship is stronger in the less developed capital market than in the more developed one.
The financial benefits of CSR practices are also more salient in the low information diffusion market than in the high one.
Bolton (2013), examined the effect that Corporate Social Responsibility has on bank financial performance, specifically. Using data from (KLD) database, the study reveal that there is a positive relationship between CSR and financial performance, measured with both operating performance and firm value. Decomposition of the results showed that the superior performance and firm value is being driven by the bank‘s CSR activities that are related to the core operating activities, and not to activities that could be liken to green-washing. This suggested that banks with the strongest CSR environments ultimately have the best operating and stock market performance and that banks can only improve financial performance by focusing on those activities that are directly related to their operations. The study revealed that there is no general relationship between CSR and bank
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taking. While there is a negative relationship between bank risk and CSR activities related to core operations (measured by KLD-Business), there is a positive relationship between bank risk-taking and CSR activities that are not related to core operations (measured by KLD-Discretionary). The implication is that the types of CSR investments that banks made mattered more than the amount of CSR investments. Banks with the strongest core CSR environments have the least risk. He concluded that investing in better CSR environments can increase bank value and can reduce bank risk, so long as those investments are aimed at improving the bank‘s fundamental CSR activities.
Albuquerque, Durnev, and Koskinen (2013) provided empirical evidence on how CSR policies affect the risks firms are facing and the stock market implications of those policies. Their study indicated that CSR leads to lower systematic risk and higher valuations. Specifically the level of systematic risk is statistically significantly lower for firms with higher aggregate CSR scores. The effect of CSR score on Tobin‘s Q is positive and highly significant. Community, diversity, employee, environment and human attributes of CSR, when entered separately are negatively and statistically significantly linked to firm beta. Size dummy has no significant effect on firm systematic risk. Leverage, Cash, ME, Dividend yield, and Diversification are positively related to systematic risk. R&D is associated with lower systematic risk. The other controls, including Advertising expenditures and Operating leverage, are not significant across specifications. CSR is more strongly related to Tobin‘s Q with differentiated goods. The effect of CSR on firm beta is stronger in industries with greater.
Servaes and Tamayo (2013) examined whether and under what conditions CSR can add value to the firm. More specifically, they examined whether CSR activities are more value enhancing if they are conducted by firms with more consumer awareness. The study showed that corporate social responsibility (CSR) and firm value are positively related for firms with high customer awareness, as proxied by advertising expenditures. For firms with low customer awareness, the relation is either negative or insignificant. In addition, they found that the effect of awareness on the CSR–value relation is reversed for firms with a poor prior reputation as corporate citizens. This evidence is
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consistent with the view that CSR activities can add value to the firm but only under certain conditions. That in certain circumstances CSR enhances the value of the firm, but in others, it could destroy value, suggesting that some firms adhere to the shareholder model, and others may consider broader objectives. The study highlighted the complexity of the mechanism through which CSR affects firm value by empirically establishing one condition under which such a relation can be uncovered by validating the claim that understanding the link between CSR and value requires models of stakeholder behavior that explain how CSR activities enhance/destroy value.
According to a study by Abogun, Fagbemi, and Uwuigbe (2013), on the the impact of corporate social responsibility expenditure on firm performance and firm value of Nigerian banks, the study documented a positive relation between CSR and firm performance and firm value. Specifically the study showed that there is also a positive significant relationship between CSR and DPS. Also there is a significant relationship between CSR and EPS. The result from correlation showed that there exists positive relationship between CSR expenditure and firm performance as well as firm value.
Abdulrahman (2013), examined the influence of corporate social responsibility on profit after tax of some selected deposit money banks in Nigeria. The study indicated that there is significant influence of corporate social responsibility on profit after tax of banks in Nigeria.
Using a panel dataset, Comincioli, Poddi, and Vergalli (2012) verified whether certain performance indicators can be affected by a firm‘s social responsible behaviour. They build a CSR index in order to solve the problem of multiplicity CSR definitions. The study showed that the economic performance measured by MVA has significant negative relation with CSR, MVA decreases when CSR increases. There is significant positive relation between MVA and GDP. This indicated that CSR firms, which are more virtuous, have better long-run performance: even if they have initial costs due to the CSR certificationm, they achieve higher sales volumes and profits as a result of the reputaion effect, a reduction in long-run costs and increased social responsible demand.
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Mulyadi and Anwar (2012) examined impact of CSR toward firm value and profitability. Using double linear regression model and usage of GRI as measurement of CSR activity. The study documented that there is no significant relationship between CSR and profitability. There is also no significant relationship between CSR and firm value. Specifically their study discover that CSR has insignificant positive impact to ROA. CSR has insignificant negative impact to ROE. Growth rate, and size has significant positive effect on ROA. Leverage has negative significant impact on ROA.
Only leverage that has positive significant correlation with ROE. There is insignificant negative relationship between CSR to NPM and firm value. NPM is significantly affected by size, leverage and growth rate. There is no variable that is significantly affected firm value
Similarly, Stuebs and Sun (2011) empirically examined the association between CSR and corporate reputation using sample of highly reputable firms from Fortune‘s 2006 America‘s Most Admired Companies. The study showed that there is a significant and positive relation between corporate social responsibility (KLD) and the reputation measures (Rep-Score and REPU). Also Reputation score (Rep-Score) is positively associated with assets and the market-to-book ratio at significant levels. The study demonstrated that in addition to improving financial performance, CSR improves reputation. A firm can do well (improved financial performance) by doing good (improved CSR and reputation).
Wang (2011) empirically explored how the fulfillment of corporate social responsibility would impact on corporate stock performance. Corporate social responsibility index (CSRI), including three dimensions: economic, social, and environmental dimensions described by seven measurable variables, three CSR portfolios based on the CSRI - high, medium, and low, were constructed to examine short-run and long-run stock returns relative to those of benchmark portfolios. The study revealed that more socially responsible firms could perform better than less socially responsible firms in stock market. The study indicated that the high CSR portfolio on average has a higher excess