Strategic versus Ad-hoc Corporate Social Performance: An Analysis of CSP Maturity and Its Relationship to Corporate Financial Performance

Abstract

This paper extends empirical research that examines the Corporate Social Performance (CSP)-Corporate Financial Performance (CFP) relationship. Previous studies display mixed findings with no unified evidence regarding the CSP-CFP relationship's direction or impact. We introduce the concepts of strategic CSP and ad-hoc CSP, which we collectively term "CSP maturity." Using panel data on 86 large European banks and insurance companies, we investigate whether there is a relationship between a company's financial performance (CFP) and CSP maturity and, if a relationship is present, its direction and causality. Correlation analysis suggests CSP maturity and CFP are negatively related to one another; independent sample t-tests show statistically significant different means of ROA and ROS for companies engaged in strategic and ad-hoc CSP. Ad-hoc companies were on average associated with better ROA and ROS. No significant difference was present for ROE. In contrast, regression analysis did not show a relationship between CSP maturity and CFP, suggesting CSP maturity does not have an impact on CFP nor can CFP be used to explain CSP maturity. The results of this study may be limited in their generalizations because the data includes 2007-2008; a period of time the global economy experienced a major recession.

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