Study on the Relationship between CSR and Financial Performance

Cho, Sang Jun; Chung, Chune Young; Young, Jason

doi:10.3390/su11020343

Cited by 310 publications

(337 citation statements)

References 82 publications

(78 reference statements)

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“…The results imply that as CSR activities increase, long-term performance decreases. However, when we introduce an interaction term, CSR × OC, which combines the CSR dummy (if CSR > 0, then CSR_D = 1, otherwise 0) with OC ranks (1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)(13)(14)(15)(16)(17)(18)(19)(20) as in models 3 and 4, the results are totally different. The relationship between CSR and AAR turns to positive and significant (p-value < 5%) in model 3.…”

Section: Resultsmentioning

confidence: 99%

“…Recently, many studies on CSR have covered the relationship between CSR and financial performance. A number of empirical studies have shown that the more CSR activities a company is involved in, the better its long-term performance (e.g., [8,9]). Li et al [10] investigated equity returns and showed that a portfolio consisting of the best CSR companies in the world generated positive abnormal returns.…”

Section: Introductionmentioning

confidence: 99%

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Managerial Overconfidence, Corporate Social Responsibility Activities, and Financial Constraints

2019

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Managerial overconfidence refers to managers' cognitive bias, according to which they demonstrate unwarranted belief in their own judgments and capabilities. This study provides a new measurement of CEO overconfidence through textual analysis of management discussion and analysis (MD&A) in 10-K documents by making use of the US Securities and Exchange Commission (SEC) EDGAR database. Overconfidence was obtained from "optimism" using the Diction program. From a sample of 19,367 US firms from 1994 to 2016, we found that CEO overconfidence was negatively related to corporate social responsibility (CSR) activities. Since overconfident CEOs are likely to consider CSR activities less important than their own ability, they seem to reduce CSR activities. Also, CSR activities initiated by overconfident CEOs were negatively related to firms' long-term performance. However, CSR activities led to positive long-term performance in firms that were financially constrained. Our findings show that CSR activities undertaken as a result of CEO overconfidence by financially unconstrained firms could be harmful to shareholder value in the long term.Sustainability 2020, 12, 61 2 of 14 CSR activities are diverse and mostly require financial resources, which include community engagement, marketing and advertising, customer relations, workplace health and safety, union relations, human rights policies, product safety and quality, transparency in reporting, governance structure, and environmental protection activities. Chan et al. [14] found that, in general, firms facing financial constraints do not engage in any CSR activities. Zhao and Xiao [15] also found that CSR engagement is negatively correlated with financial constraints. Therefore, if firms face financial constraints with regard to engaging in CSR activities, rigorous CSR activities could be harmful to their long-term performance. We examine the long-term performance of CSR activities initiated by overconfident CEOs, considering financial constraints.Prior research on the impact of a CEO's emotional bias (optimism, loss aversion, overconfidence) and other self-serving bias on corporate strategic decisions included financing decision [16], investments [17], dividend payment [18], cost behavior, and R&D expenditure [19]. This paper tries to examine the impact of CEOs' overconfidence level on CSR activities for the first time. As far as we know, no previous research has investigated the relationships between managerial overconfidence, CSR activities, and financial performance. This research offers a particular qualitative approach in providing a new measurement of CEO overconfidence through computer-assisted textual analysis, by describing and interpreting characteristics of the management discussion and analysis (MD&A). Classified as overconfident or normal, CEOs prefer to choose more or fewer CSR activities, according to their characteristics. The long-term performance of a firm depends on its CSR activities as well as its financial situation. Specifically, if a firm is financial...

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Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Managerial Overconfidence, Corporate Social Responsibility Activities, and Financial Constraints

2019

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“…A review of the literature reveals findings concerning the consequences of responsible practices in business performance. The bibliometric study carried out by Van Beurden and Gössling (2008) provides clear empirical evidence of a positive correlation between firms' social and financial performance (Griffin, 2000;Margolis & Walsh, 2001;Orlitzky, Schmidt, & Rynes, 2003;Maron, 2006;Wu, 2006;Cho, Chung, & Young, 2019). Other authors, however, point to negative correlations (Griffin & Mahon, 1997), causal ambiguity (Waddock & Graves, 1997a, 1997b, or to a bidirectional relation (Choi, Kwak, & Choe, 2010).…”

Section: Literature Review and Formulation Of The Modelmentioning

confidence: 99%

Exploring sustainability, good governance, and social responsibility in small and medium enterprises

Rubio‐Andrés

Ramos‐González

Sastre‐Castillo

et al. 2019

Corp Soc Responsibility Env

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Small and medium enterprises (SMEs) need to create shared value in order to compete in a global environment. Reputation is the result of the good work carried out by SMEs with regard to their main stakeholders, given their condition as a small‐ or medium‐sized enterprise. Rather than drawing on conventional financial performance, we propose an innovative sustainability model using shared value creation as the main endogenous variable. The results obtained are based on the opinions of the 261 owners–managers consulted. The method used is partial least squares, and conclusions show that good governance in SMEs must be reflected in good responsibility practices so as to generate reputation, which in turn has a positive effect on shared value. This leads to an effective level of commitment for SMEs, such that their codes of good governance and reports must be consistent with their responsibility towards stakeholders in order to achieve shared value.

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“…We measure profitability and firm value using Return on Assets (ROA) and Tobin's Q as the respective proxies. In particular, ROA is calculated dividing the firm's net income by its total assets and measures how efficiently firm assets are employed to generate financial profit (Cho et al, 2019). Tobin's Q, instead, is calculated dividing the firm's market value of total assets by their cost of replacement.…”

Section: Dependent Variablesmentioning

confidence: 99%

CSR and Corporate Financial Performance: An Inter-Sectorial Analysis

Salvi¹,

Doronzo²,

Giakoumelou³

et al. 2019

IJBM

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This study examines the relationship between corporate social responsibility (CSR) and corporate financial performance (CFP), shedding new light on the lack of academic consensus and prevailing failure to deal with endogeneity in data. To this purpose, the authors recalculate ESG performance starting from the four pillars (economic, environmental, governance and social) provided by Thomson Reuters’ Asset4 database, able to determine a firm’s CSP. We adjust each ESG pillar score accounting for the firm’s sector, size and headquarter geographic area. We empirically test the relationship with a Generalized Method of Moments approach (GMM) in order to tackle the widely disputed endogeneity issues arising in this type of datasets. Results highlight a positive relationship between CSR, as measured in a tailored manner in this study, and corporate financial performance.

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Study on the Relationship between CSR and Financial Performance

Cited by 310 publications

References 82 publications

Managerial Overconfidence, Corporate Social Responsibility Activities, and Financial Constraints

Managerial Overconfidence, Corporate Social Responsibility Activities, and Financial Constraints

Exploring sustainability, good governance, and social responsibility in small and medium enterprises

CSR and Corporate Financial Performance: An Inter-Sectorial Analysis

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