Corporate social responsibility and financial performance - the case of polish enterprises

Social responsibilities of companies and managers  have been widely discussed in economic literature since the 1950s, but the field of corporate social responsibility (CSR) has grown significantly in the last two decades.  The relationship between corporate social responsibility and profitability has become a major focus of interest particularly in recent years. Researchers have reported a positive, negative and neutral impact of corporate social responsibility on financial performance. Some economists argue that additional investment in CSR  is inconsistent with efforts of companies to maximize profits  (Milton, McGuire).   According to this view high investment in social responsibility results in additional costs which might put a firm at an economic  disadvantage compared to other, less socially responsible firms. The other economists claim that there are so many factors and variables that intervene between profitability and CSR that there is no reason for the existence of any relationship between these two variables.  The third view argues that there is a positive linkage because the actual costs of CSR are covered by the benefits.

The following paper examines the relationship between corporate social responsibility and financial performance of the Polish companies  by using empirical methods (panel data model). The dataset  includes companies listed on the Warsaw Stock Exchange, among which some participate in the Respect Index (Respect Index covers companies which follow the highest corporate social responsibility standards). The study uses data covering  a three-year period 2009-2011. The year  2009  is chosen as the beginning of observations because it was when the Warsaw Stock Exchange published the Respect Index for the first time.

The paper estimates the effect of CSR by regressing firm performance on corporate social indicator and on several control variables. Company financial performance is measured by ROA variable (return on assets). A measure of CSR is a dummy variable, with a value of 1 if a firm is included in the Respect Index in a given year and 0 if a firm is not included. The characteristics of size, risk and industry are used as control variables. Size (measured by employment), risk (measured by Debt/Assets Ratio) and industry (represented in model by dummy variables) are treated  as factors determining a company's performance and CSR.