Does corporate social responsibility lead to improved firm performance? The hidden role of financial slack

Abstract

Purpose The purpose of this study is to investigate the relationship between corporate social responsibility (CSR) and corporate financial performance (CFP), as the findings on the relationship have been inconsistent and have led to calls to further examine this relationship. However, instead of investigating the connection between CSR and CFP, academics have stated that a contingency viewpoint must be used for uncovering the context and conditions which catalyse the relationship between both constructs. Design/methodology/approach This study acquired the CSR data from 100 companies listed in Fortune’s most admired US companies between 2007 and 2016. These data were used to investigate the CSR–CFP link with the help of the dynamic panel data system, which is the generalised method of moments (GMM) estimator. Findings The results indicate that CSR and CFP have a neutral relationship which characterises the effect between CFP and CSR. However, this study found that financial slack positively affected the CSR–CFP relationship, implying that companies will only benefit from CSR activities if they have excess financial resources. Originality/value This study offers a very distinctive perspective regarding the CSR–CFP link according to the financial slack perspective.

Market differentiation threshold and the relationship between corporate social responsibility and corporate financial performance

“…The different control variables included in the previous studies included firm risk, firm size, and slack resources. These have all been suggested as factors that will affect both CSR and firm performance (e.g., Kim et al, ; Lin, Ho, et al, ; McWilliams & Siegel, ; Ullmann, ). The firm size was an important control variable and used all the company assets and revenue as the indicator variables with regard to its size.…”

“…As this study was related to the various organizational‐level performance effects, we used four dependent variables which included the popular financial measures, three for accounting based measure that is, return on asset (ROA), return or equity (ROE), return on invested capital (ROIC), and one from market based measure, that is, Tobin's Q (Lin, Law, et al, ; Lin, Ho, et al, ; Oh & Park, ). Since most of the CSR studies used them as the variables for profitability and value in the analysis.…”

“…We measure the firm risk, which was estimated as the ratio of the total debts to total assets (McWilliams & Siegel, ; Waddock & Graves, ). Finally, the study included slack resources, which were assessed as the ratio between the organization's total assets and free cash flow (Lin, Ho, et al, ).…”

Asymmetric effects of corporate sustainability strategy on value creation among global automotive firms: A dynamic panel quantile regression approach

“…This website collects data from over 100 places and uses the data to generate corporate sustainability strategy scores (e.g., the four environmental barometers, performance, community, governance and employees are given more than 2 million data factors). The indexes provided by this website have been widely utilised in recent studies (Acabado, 2015; Bu, Liu, Wagner, & Yu, 2013; Lin, Ho, et al, 2019; Thanetsunthorn, 2015; Yan, Chou, Chang, & Darcy, 2017) and have advantages that are not available in other approaches. To begin with, more than 17,267 companies from 133 countries and 135 industries are included in this website's database.…”

“…Until now, a significant number of research works have studied the association between corporate sustainability strategy and firm performance (Margolis & Walsh, 2003; Orlitzky, Schmidt, & Rynes, 2003; Peloza, 2006). However, they have presented mixed results (refer to Table 1), with some being positive (e.g., Inoue & Lee, 2011; Jo, Kim, & Park, 2015; Lin, Yang, & Liou, 2009; Lin, Ho, Ng, & Lee, 2019), some being negative (e.g., Aupperle, Carroll, & Hatfield, 1985; Brammer & Pavelin, 2006; McGuire, Sundgren, & Schneeweis, 1988), and others being neutral (e.g., Makni, Francoeur, & Bellavance, 2009; McWilliams & Siegel, 2001; Soana, 2011) or intricately curvilinear (e.g., Barnett, York, & Salomon, 2002). In other words, there is a lack of agreement regarding whether a high degree of corporate sustainability strategy does indeed lead to enhanced financial performance (Inoue & Lee, 2011; Margolis & Walsh, 2003; McWilliams & Siegel, 2000).…”