The Impact of Social Responsibility on the Performance of European Listed Companies

Abstract

This research aims to analyze the impact of Social Responsibility on the performance of 216 European companies during the years 2017 to 2021. The objective of this research is to determine how the operational, financial and market performance of companies is influenced by social responsibility practices. The methodology adopted is quantitative in nature, using the estimation of dynamic models for panel data. To quantify corporate performance, this study will use, the return on assets, the return on equity and finally the Tobin's Q ratio. On the other hand, ESG (Environment, Social and Government) scores and GC Score scores will be used in order to quantify SR. The results show that SR presents not only a negative influence on the financial and operational performance of companies, but also a positive impact on market performance. This influence is even greater when distinguishing the best from the worst scores. The environment, social and government dimension shows a negative relationship with ROA and ROE, and a positive one with Tobin's Q. On the other hand, the anti-corruption and environment dimension of the GC Score, relates negatively with Tobin's Q, the human rights dimension relates negatively with ROE and ROA, and finally, the labor law dimension presents a positive relationship with ROE. Importantly, firm size positively influences this relationship, while age has a negative influence. This research offers important contributions to the literature, since from the ESG scores and the GC Score, a complete analysis of the impact of social responsibility on corporate performance is developed.